Thu, Jan 06, 2005 - Page 10 News List

Local automobile manufacturers expect a rough ride

NO BREAKS Taiwan's car makers, who have already been operating in a highly competitive environment, are projecting that the government's policy of cutting tax breaks will have a negative impact on their profits

By Amber Chung  /  STAFF REPORTER

Taiwan's automobile makers, who have already been operating in a saturated and highly competitive environment locally, are expecting to further tighten their belts this year.

"We are experiencing great pressure in retaining our profit levels," said Liu Yi-cheng (劉一震), president of Yulon Nissan Motor Co (裕隆日產), the nation's third-largest automobile company and distributor of Nissan cars.

"We see labor costs rising year after year; we also face higher raw-materials prices such as those of steel; and we will see no commodity-tax breaks this year," Liu said.

The government offered tax exemptions ranging from 3 percent to 9 percent to automakers using chassis, bodies and engines designed or developed locally, as part of a strategy to encourage local carmakers to stay and develop their business in Taiwan.

Taiwan joined the World Trade Organization in 2002 and was given a three-year grace period to revoke the nation's tax breaks, including the termination of commodity-tax breaks for domestic automakers at the end of last year.

The impact is that there is nowhere to hide.

Take Yulon Nissan as an example. The company paid around NT$5 billion in commodity taxes last year and is estimated to pay extra tariffs of between NT$1 billion and NT$2 billion this year, Liu said.

Yulon Nissan was not the sole player to experience the negative impact.

Kuozui Motors Ltd (國瑞汽車), which assembles Toyota cars, and China Motors would need to bear extra tax costs of NT$1 billion and NT$1.2 billion after the tax breaks were due, respectively, according to the companies.

However, no player wants to be the first to raise prices to reflect rising costs, in fear of losing the edge in the nation's competitive car market.

"We have no choice but to strengthen our cost-down schemes in new ways," China Motor spokesman Hsu Li-min (許利民) said, adding that the company plans to cut costs by up to NT$2 billion this year.

The company not only asked their suppliers for further price cuts, but is endeavoring to trim back expenses internally, Hsu said. Even details like different ways of printing advertising materials are included in the cost-down program, in an effort to retain its profit target.

Yulon Nissan said it plans to reduce costs by 3 percent to 4 percent this year through cooperation with its suppliers and further participation in partner Nissan Motor Co's global purchasing mechanism to keep a gross profit margin of 6 percent.

Kuozui declined to give an estimate for its cost reductions. But Hotai Motor Co (和泰汽車) spokes-man Steven Yang (楊湘泉) said they estimated that room for Toyota component-price cuts can range between 2 percent and 3 percent this year. Hotai Motor distributes both Toyota and Lexus cars in Taiwan.

Besides cost reductions, automakers such as Yulon Nissan and China Motor are also placing their hopes on the possible turnaround of their investments in China this year. These two companies faced declining contributions from their Chinese ventures last year due to Beijing's measures to rein in its overheating economy.

"China's clampdown measures and cutthroat price competition between over 130 automakers have negatively impacted on all car manufacturers in China, including Taiwanese automakers," said Sam Wu (吳鴻昇), an analyst at Yuanta Core Pacific Capital Management (元大京華投顧).

Yulon Nissan saw the profits from its investment in China, including Fengshen Automotive Co (風神汽車), in which the carmaker holds a 40 percent-stake, drop to around NT$800 million last year from NT$3 billion in 2003. Contributions from China Motor's Chinese venture South-east Motors Co (東南汽車) also shrank to 280 million yuan for the first 10 months of last year compared to 800 million Chinese in 2003.

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