SAIC Motor forecasts flat market in China for '09

SAIC Motor, China's largest carmaker, said that quarterly earnings had dropped nearly 50 per cent, and forecast a flat vehicle market in China for 2009 in spite of surprisingly strong China vehicle sales.

Net profit for the first quarter was 627m yuan ($91m), down from 1.24bn yuan in the same period last year. Full-year 2008 net profits had fallen 85 per cent to Rmb656m. The quarterly profits reversed fourth-quarter losses, but SAIC said the outlook for the full year "is not optimistic with lots of uncertainties ahead."

The carmaker said it expected to sell 1.8m vehicles this year, down from 1.83m in 2008. SAIC said it expected the China vehicle market also to be flat this year, at 9.35m vehicles, well below a government target of 10m vehicles.

SAIC's comments, which came as the Shanghai motor show ended on Tuesday, contrasted with more optimistic forecasts from several foreign carmakers, including SAIC's joint-venture partner, General Motors. The US carmaker said recently that it expected the China vehicle market to grow by 5 to 10 per cent this year.

GM and Volkswagen, SAIC's other foreign joint- venture partner, both reported unexpectedly strong vehicle sales in the first quarter. SAIC also makes MG own-brand cars after acquiring brands and technology from MG Rover.

Sales of passenger vehicles in China in March rose 10 per cent from a year earlier, and total vehicle sales reached a record. The vehicle market was boosted strongly in the first quarter by government tax cuts for small cars and subsidies for rural buyers.

JD Power, the car consultancy, recently revised its forecast for China passenger car sales upward by about five percentage points, due to strong first-quarter sales, but the consultancy is still expecting only low single-digit growth this year.

Motor industry analysts and car companies are divided over whether the China car market has bottomed out, and whether strong sales can be sustained throughout the year. 

Yao Hongguang, a motor industry analyst at United Securities, said the fall in SAIC's 2008 profit was not unexpected given the sensitivity of the Chinese motor industry to the economic downturn at the end of last year.

SAIC spent heavily last year on developing own brand cars, sales of which rose four-fold to 18,000 last year. Mr Yao said SAIC's 2008 earnings were also hit by provisions made for its South Korean subsidiary Ssangyong Motor, which is now under court receivership.