Auto industry profits rise 46% in 2006

Boosted by buoyant sales, China's auto sector reported a surprisingly sharp rebound in profits for 2006, according to industry reports, but the pace is predicted to slow this year.

Combined profits for the industry, including vehicles, engines, spare parts and motorcycles, jumped by 46 percent to 76.8 billion yuan last year, according to statistics from the China Association of Automobile Manufacturers.

The robust growth beat the estimates of most analysts, who predicted the sector's 2006 profits would rise about 20 percent.

Strong overall performance last year came after two consecutive years of profit decreases due to slowing sales, rising costs and heated price wars in the domestic car market.

Profits of the sector fell by 24.3 percent in 2005 and 5.2 percent in 2004.

Vehicle manufacturing, the top profit center for the entire auto sector, earned 34.2 billion yuan last year, a surge of 47.7 percent, according to the year- end report.

Song Bingshen, an analyst with CITIC China Securities Co, attributed the hefty profits last year to stronger-than-expected vehicle sales and record introduction of new models.

Sales of China-made vehicles climbed 25 percent to 7.22 million units last year, which enabled the country to surpass Japan as the world's second-largest vehicle market. The increase was up from 13.5 percent in 2005.

"Car price cuts failed to squeeze profits last year as most reductions were on older models," Song said. "Carmakers launched many new products which contributed significantly to their sales," Song said.

However, analysts anticipate the sector's profit growth this year will decelerate as a result of slower vehicle sales and bigger price reductions.

Hua Xue, president of cheshi.com.cn, a Beijing-based website for online car sales and price tracking nationwide, said prices will fall by more than 6 percent this year.   "Many carmakers have set lofty sales goals this year inspired by strong performance last year," Hua said. "But the market will not grow as fast as they expect."

"They will have to cut prices, especially in the low and medium segment, to achieve their targets," he said.