SAIC Motor profit sags as China car market slows

A sharp drop in first-half profit at China's biggest car maker underlined how slowing economic growth and higher fuel prices are putting the brakes on the Chinese auto sector.

SAIC Motor Corp, which runs major manufacturing tie-ups with General Motors Corp and Volkswagen AG, said on Saturday that net profit fell 28 percent from a year earlier to 1.97 billion yuan ($288 million) in the first six months of 2008.

In the second quarter, profit plunged 53 percent to 724.58 million yuan, according to Reuters calculations.

"Since the second quarter, growth of the domestic vehicle market has clearly slowed, and because of delays in introducing own-brand models, sales have not hit their targets," SAIC said.

The firm is set to miss analysts' earnings forecasts for the full year unless profits rebound dramatically in the second half. Analysts have been predicting 2008 profit of 4.60 billion yuan, down only 1 percent from 2007, according to Reuters estimates.

Special factors hit SAIC's profit in the first half. Integration with Nanjing Automobile Group, acquired this year as the government promotes SAIC's expansion as a national car champion, is weighing on profits in the short term, it said.

Also, the crash of China's stock market hit earnings. Investment earnings shrank to 3.12 billion yuan in the first half from 3.50 billion yuan a year earlier.

But SAIC said market conditions were pressuring its core business. Its gross profit margin in vehicle production dropped 1.9 percentage points from a year earlier to 12.03 percent in the first half.

"The domestic car market is set to continue growing for the full year, but at a slower pace, and with competition likely to become fiercer and costs rising sharply, pressure on the company's profits will continue to rise," it said.

In July, sales of sedans, multipurpose vehicles and sport utility vehicles in China, the world's second largest car market, rose 6.79 percent from a year ago in volume terms, according to the main industry association.

Tht was the smallest monthly gain in two years and well below annual growth of 20-30 percent enjoyed since 2005.

In value terms, SAIC's domestic vehicle sales rose 28 percent in the first half to 47.84 billion yuan. But overseas sales, apparently hit by slower global economic growth, fell 29 percent to 9.80 billion yuan.

Other Chinese auto makers have reported slowing earnings growth for the first half. On Saturday, Chongqing Changan Automobile Co, a partner of Ford Motor Co, said net profit rose only 4 percent in the first six months, slowing from 55 percent growth in the first quarter.