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2012-08-22 15:08

GOT TO SLOW DOWN: China is the world's biggest car market, but tough economic conditions are threatening its sustained growth.

BEIJING, China - Chinese automakers have had their toughest first half since the global financial crisis and the rest of 2012 looks set to be tougher still as the world's largest car market sputters in a slowing economy.

State auto groups with strong foreign ties, such as SAIC Motor Corp, can still deliver earnings growth, but others may find themselves locked in reverse gear, industry observers say.


Zhang Xin, an analyst at Guotai Junan Securities, said: "This is a tough year for all automakers, large or small. 2011 wasn't so good either because (government stimulus) incentives were gone, but it's much worse now as the economy is not doing so well. It's like a double whammy."

China's economy grew at its slowest pace in more than three years in the second quarter of 2012 as demand at home and abroad slackened, confirming a downtrend that has full-year growth on course for its weakest in 13 years.

The China Association of Automobile Manufacturers is keeping to its forecast for a five to 8% rise in overall vehicle sales this year - a far cry from explosive growth of 46% and 32% in 2009 and 2010, respectively. January-July, 2012 total vehicle sales rose just 3.65 after anemic growth of 2.5% in 2011, setting China up for its slowest back-to-back years of growth since the late 1990s.

Life for China's local brands is tough.

Geely, which reports half-year earnings later on Wednesday, and Great Wall Motor Company should hold up better than most as they have expanding export businesses, analysts say.


But Warren Buffett-backed BYD has warned of a more than 50% slump in its January-June earnings, blaming weak car sales and continuous losses in its solar energy business. The safety of its electric car was also called into question after an e6 taxi caught fire in a fatal accident in May even though a probe showed the lithium-ion phosphate battery that powers the car did not explode after the collision.

And FAW has predicted it could swing to as much as a 75 million yuan (R97.9 million) first-half net loss.

SAIC, which makes cars in China in partnership with General Motors and Volkswagen AG, the two largest foreign automakers in the market, could still achieve double-digit earnings growth in the second quarter, according to forecasts by three analysts - still a far cry from recent growth spurred by Beijing's stimulus measures. Earnings jumped by around a quarter in 2012 when the Chinese economy appeared largely immune from the debt crisis seizing Europe.

Net income at Dongfeng Motor Group Co - which makes cars in partnership with Nissan, Honda and PSA Peugeot Citroen - is seen flat in the first half as it is exposed to a steep downturn in heavy truck sales.

Geely is the second-best performer in the sector this year among 53 large- and mid-cap autos firms globally, with its share price rising 62%. Chinese automakers crowd the list of losers in the global auto sector, with shares in BYD, Dongfeng, SAIC and Brilliance China among the worst performers so far this year.


Even the popular German luxury brands have resorted to a price war as they look to hit ambitious sales targets in China - a move that may further cannibalise the sales and earnings of mass-market marques.

John Zeng, Asia Pacific director for industry consultancy LMC Automotive said: "There are lots of uncertainties ahead. The euro zone could continue to drag on the economy ... and the auto market could slow further if more cities start to restrict car sales."

Guangzhou's city government last month joined Shanghai, Beijing and Guiyang in capping car sales in an effort to ease chronic traffic congestion and pollution. Xian, an inland city in the northwest, was forced to back down from a similar move after a public outcry. Other cities are also said to be considering restricting car sales.

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