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General Motors Expects Auto Sales to Pick up

General Motors, the world's top automaker, expected China's car market to recover from a recent slowdown by mid-2005, chief executive Rick Wagoner said.

He said China remained on track to become GM's second-largest market by the end of this year, even as sales slow fol-lowing a government crackdown on easy credit.

"Generally they've been leveling out and our outlook is the market will continue to be relatively slow in its growth for the next six months or so," Wagoner said.

"But from everything we hear from the government, the plan will be growth will pick back up as we get into next year," he said. "Whether that's the first quarter or second quarter, we'll have to see."

Sales in the world's fastest-growing major car market last year began slowing after the second quarter as the government tried to cool an economy in danger of overheating.

But they showed signs of life in September, rising 14 percent from August to 194,100 units, domestic media said.

General Motors Corp. posted disappointing quarterly earnings earlier this month and cut its 2004 profit forecast due to mounting losses in Europe and slowing growth in China.

The Detroit giant's third-quarter earnings from China fell to US$80 million from US$142 mil-lion. Wagoner declined to give an outlook for fourth-quarter China profit. But his downbeat assessment of the market, which posted its first year-on-year decline in car output in September since 2001, suggested GM would continue to take a hit from decelerating demand in a country that accounts for a fifth of overall profit.

Still, Wagoner remained bullish in the long run.

"We think in the longer term, not only will sales and revenue grow, but profit can also commence growing when we get some demand back," he said.

Industry watchers expect car sales to rise 10-20 percent this year after doubling last year to about two million sedans.

GM's vehicle sales in China climbed 38 percent from a year earlier to 367,944 units in the first nine months - well off the pace of 2003 when sales jumped by nearly half.

Apart from decelerating sales, vicious price cuts are eroding margins for the industry at a time when analysts are predicting a glut of capacity down the road.

GM offered 11 percent discounts in May before Volkswagen AG countered by hacking prices by up to 11.7 percent in June.

Automakers such as Tianjin FAW Xiali Automobile Ltd. rolled back their pace of production in the third quarter as they tried to move unsold inventory.

This month, a senior executive at Shanghai Automotive Industry Corp., GM's main China partner, said the firm would post flat earnings at best this year in the latest affirmation of the sector's crumbling margins.

GM and rivals such as Volkswagen, Ford Motor and Toyota Motor Corp. are spending more than US$13 billion to triple capacity to some six million sedans annually by 2010.

Among other ventures GM is pursuing in China, the U.S. firm signed an agreement with Shanghai Auto last week to develop fuel-cell vehicles, but did not say if they would be sold commercially.

GM and its Chinese partners are investing US$3 billion over the next three years to almost double annual capacity to 1.3 million vehicles.

(Shenzhen Daily November 17, 2004)

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