First Auto Works (FAW) Car Co., China's biggest automaker, warned Wednesday that its first-half net profit could fall by more than 50 percent amid sluggish sales, rising costs and government moves to tighten credit for buying cars.
FAW Car, whose shares are traded in Shenzhen, posted a net profit of 322.5 million yuan (US$39 million) in the first half of last year, the company said in a notice.
Apart from its own Red Flag sedans, the carmaker, which is based in the northeastern city of Changchun, produces Mazda 6 models under a technical license from Mazda Motor Corp.
FAW Car's biggest shareholder, State-owned First Automobile Works Group, became the first automaker in China to surpass one million unit sales last year, maintaining its top ranking among local automakers, State media reported earlier this year.
Overall, car sales in the country plunged in the second half of last year after the government restricted credit for auto purchases as it tried to slow spending and investment in areas that it believed were overheated, such as steel, cement and autos. Sales fell a further 7.7 percent in the first quarter of this year.
The auto sector saw profits slide 57 percent in the first four months of this year, compared with a year earlier, due to slow sales and rising costs, with the vehicle-making segment of the industry reporting a 74 percent plunge in profits in the first four months of the year, according to the China Association of Automobile Manufacturers.
Falling car prices and rising costs for steel and rubber have cut into profits, but slowing growth in sales and a shift away from higher-margin luxury and full-size vehicles and toward economy models has also hurt.
(Shenzhen Daily June 16, 2005)