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For domestic carmakers, times are tough, profit growth elusive
By Lu Nengneng |
April 20, 2013, Saturday
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Print Edition
Print Edition
THE winners and the losers in China's auto market came into clearer focus with the recent release of 2012 financial reports from domestic carmakers.
Amid tepid demand, six of 10 major listed auto companies showed declines in net profit, including three state-backed manufacturers that suffered heavily.
Dongfeng Motor Group, China's second-largest carmaker, reported a 13.2 percent drop in earnings to 9.1 billion yuan (US$1.5 billion), despite a 65 percent increase in government subsidies to 745 million yuan.
Xu Ping, chairman of Dongfeng, blamed the sluggish performance on weak sales of its co-produced Nissan and Honda cars, amid nationwide boycotts of Japanese goods in September following the outbreak of the diplomatic hostilities over ownership of the Diaoyu Islands.
The repercussions of that bilateral dispute also weighed heavily on the GAC Group, which reported a 73.5 plunge in profit to 1.1 billion yuan because of its heavy business ties to Japanese partners Toyota and Nissan.
But that wasn't the worst case. FAW Car, which makes autos with Mazda, estimated it lost between 500 million yuan and 800 million yuan last year, turning from profit of 217 million yuan in 2011.
The company explained that an intensifying price war in the auto market squeezed profit margins and said its "strategic investment" - presumably from developing its own Red Flag and Bestrun brands - increased overall costs.
Privately-owned brands
It wasn't all gloom and doom, however. Privately owned domestic carmakers did quite well.
Great Wall, which specializes in sports utility vehicles (SUVs), said it made 5.7 billion yuan last year, up 66 percent from a year earlier. It cited 90 percent sales growth for its Haval SUV series. Last month, it unveiled a new logo for Haval, with plans for independent production, customer service and dealerships in the next two or three years.
Geely, which operates three product lines under its single namesake brand, reported a 32 percent increase in profit to 204 million yuan. Deliveries rose 15 percent to 483,000 units. That figure included more than 100,000 units sent to markets abroad, up 157 percent from a year earlier, making Geely China's second-biggest car exporter in 2012.
Zeng Zhilin, research director of LMC Automotive, Asia Pacific, said the government needs to rethink its policy of financial support for domestic carmakers, which now tilts heavily toward those owned by the state.
He said these companies are managed in an old bureaucratic style, lacking the initiative to be as creative as rivals managed by private entrepreneurs.
"Is it really necessary for every Chinese carmaker to develop its own brand?" Zeng asked. "They just need to find their own role in the industry. For some, making cars for foreign partners would seem to be enough."
Yet for some, like GAC and FAW, relying on such partnerships for the major portion of profits has turned out to be an unwise decision.
Amid tepid demand, six of 10 major listed auto companies showed declines in net profit, including three state-backed manufacturers that suffered heavily.
Dongfeng Motor Group, China's second-largest carmaker, reported a 13.2 percent drop in earnings to 9.1 billion yuan (US$1.5 billion), despite a 65 percent increase in government subsidies to 745 million yuan.
Xu Ping, chairman of Dongfeng, blamed the sluggish performance on weak sales of its co-produced Nissan and Honda cars, amid nationwide boycotts of Japanese goods in September following the outbreak of the diplomatic hostilities over ownership of the Diaoyu Islands.
The repercussions of that bilateral dispute also weighed heavily on the GAC Group, which reported a 73.5 plunge in profit to 1.1 billion yuan because of its heavy business ties to Japanese partners Toyota and Nissan.
But that wasn't the worst case. FAW Car, which makes autos with Mazda, estimated it lost between 500 million yuan and 800 million yuan last year, turning from profit of 217 million yuan in 2011.
The company explained that an intensifying price war in the auto market squeezed profit margins and said its "strategic investment" - presumably from developing its own Red Flag and Bestrun brands - increased overall costs.
Privately-owned brands
It wasn't all gloom and doom, however. Privately owned domestic carmakers did quite well.
Great Wall, which specializes in sports utility vehicles (SUVs), said it made 5.7 billion yuan last year, up 66 percent from a year earlier. It cited 90 percent sales growth for its Haval SUV series. Last month, it unveiled a new logo for Haval, with plans for independent production, customer service and dealerships in the next two or three years.
Geely, which operates three product lines under its single namesake brand, reported a 32 percent increase in profit to 204 million yuan. Deliveries rose 15 percent to 483,000 units. That figure included more than 100,000 units sent to markets abroad, up 157 percent from a year earlier, making Geely China's second-biggest car exporter in 2012.
Zeng Zhilin, research director of LMC Automotive, Asia Pacific, said the government needs to rethink its policy of financial support for domestic carmakers, which now tilts heavily toward those owned by the state.
He said these companies are managed in an old bureaucratic style, lacking the initiative to be as creative as rivals managed by private entrepreneurs.
"Is it really necessary for every Chinese carmaker to develop its own brand?" Zeng asked. "They just need to find their own role in the industry. For some, making cars for foreign partners would seem to be enough."
Yet for some, like GAC and FAW, relying on such partnerships for the major portion of profits has turned out to be an unwise decision.
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