Tough H1 for Chinese carmakers

Chinese automakers have had their toughest first half since the global financial crisis and the rest of this year looks set to be tougher still as the world's largest auto market sputters in a slowing economy.

State auto groups with strong foreign ties, such as domestic champion SAIC Motor Corp, could still deliver earnings growth, but others may find themselves locked in reverse gear, industry observers said. For some, exports, mostly to emerging markets such as Ukraine, Indonesia and Sri Lanka, may offer some relief from weak sales at home.

Geely Automobile Holdings, whose parent owns the Swedish brand Volvo Car, posted an 8.7% increase in first-half profit but, while it sold 9% fewer cars in China, its exports trebled to 40,061 vehicles.

Spokesman Victor Yang said Hangzhou-based Geely aimed to sell about 90,000 cars outside China this year, and would continue to chase export growth, with a forecast of 300,000 cars sold abroad by 2016.

Total sales this year are seen at around 460,000 cars.

Geely's chairman and founder Li Shufu told Reuters earlier this year that he wants to sell as many cars overseas as he does in China.

"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," said Zhang Xin, an analyst at Guotai Junan Securities. "It's like a double whammy."

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

January-July total vehicle sales rose just 3.6% after anaemic growth of 2.5% in 2011, setting China up for its slowest back-to-back years of growth since the late 1990s.

Like Geely, Great Wall Motor Co Ltd should hold up better than most as it has expanding export businesses, analysts say.

But Warren Buffett-backed BYD has warned its JanuaryJune earnings due next week could halve on weak car sales and 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 lithiumion phosphate battery that powers the car did not explode after the collision.

And FAW Car has predicted it could swing to as much as a 75 million yuan (US$11.8mil) 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 last year when China's economy appeared largely immune from the debt crisis seizing Europe.

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

Geely is the second-best performer in the sector this year among 53 large and mid-cap motor firms globally, with its share price rising 62%, Thomson Reuters StarMine data show, though the stock fell 3.7% yesterday, in its biggest one-day drop in 12 weeks.

BOCI analyst Huang Wenlong noted that Geely received more in government subsidies than had been expected, suggesting sales may not have been as strong as first thought.

Among global automakers, BYD, Dongfeng, SAIC and Brilliance China have been among the worst performers this year.