China auto's big sales bring small profits

Shanghai, May 13 (Gasgoo.com) Automakers in China have started to see record vehicle sales this year, largely thanks to the growing demand for minivans. But the big-selling mini vehicles offer little profits, let alone to boost the auto industry.

China recorded total domestic sales of 1.153 million vehicles in April, up 25% year on year (y/y), replacing the previous monthly record-high of 1.11 million units. Sales of passenger vehicles stood at 831,000 units last month, up 37.37% y/y, while commercial vehicles sold 322,100 units, up 1.38% y/y.

SAIC GM Wuling, GM's mini-commercial vehicle venture in China, increased domestic sales in April by 60.6% from a year earlier to 95,544 units, the most vehicles sold by a Chinese carmaker during the period. The Wuling Sunshine, a mini-van popular with rural customers and first-time buyers, was China's bestselling vehicle in April, tallying 50,491 units.

Hyundai Motor, which mostly sells cars with engines of less than 1.6 liters in China, saw its auto sales in the country jump 74% year on year to 50,217 cars in April. The Korean automaker mainly benefited from rising sales of its locally made small vehicles.

Several big auto groups, from SAIC Motor to Chongqing Changan Auto, reported steep falls in their first quarter earnings despite brisk vehicle sales. "A lot of the sales volume was coming from compact cars and minivans as buyers for such models could get tax incentives or subsidies. And small cars mean thin margins," said an industry analyst.

Chen was referring to Beijing's stimulus policies implemented earlier this year, including halving of purchase tax on small cars (with engines of 1.6 liters and less) to 5% and subsidies to farmers who buy mini-vans and light trucks, and who trade in their high-emission vans and trucks for fuel-efficient ones.

There may be vehicle sales growth for the industry this year, but revenue and profit may fall. Combined profits at China's top 19 automakers plunged 59% in the first two months. Competition from overseas automakers, including Volkswagen AG and General Motors Corp., is also squeezing margins.

"The overall sales numbers look pretty good this year, but profitability may not be so rosy," said Yu Bing, an analyst at Ping An Securities Co. in Shanghai. "Minivan and small-car sales really do little for the bottom line."

Demand for minivans led a rise of about 10% industry-wide vehicle sales in March. By contrast, sales of cars with 2.3-liter engines or above fell 33%, according to the China Association of Automobile Manufacturers.

China's vehicle sales may rise 8.7% this year to 10.2 million units, according to the auto industry association. That may be enough for the country to surpass the U.S. as the world's biggest auto market, as U.S. sales may drop to 9.7 million, said CSM Worldwide Inc.

"We can't be wildly optimistic about the record sales," said Zhu Yiping, an auto group's head of statistics. "Automakers' financial indicators are all still moving downwards." Profitability is hard to come by this year when the sales are surging.