Smaller cars winning profits in China market

The future of China's automobile industry is unfolding on the packed elevated highways of this nation's commercial capital, as smaller cars from newcomers are nudging aside larger old stalwarts.

Though the boxy Volkswagen Santanas that fill Shanghai's taxi fleet still outnumber the Hyundai Elantras and perky Chery QQs, it's these later, smaller arrivals that are lifting profits while others' languish.

China's car market is in a slump so far this year, with overall vehicle sales in the first quarter down 7.7 percent from a year ago as the government tightened credit policies and companies reduced purchases amid spending cutbacks.

But smaller, cheaper models are selling well, thanks largely to restrictions on lending for auto purchases, part of a nationwide credit tightening, analysts say.

The top three models sold in March were all compacts or mini-cars, according to the China Automobile Manufacturers Association: South Korean carmaker Hyundai Motor Co's Elantra, Tianjin FAW Xiali Automobile Co's (天津一汽夏利汽車) oddly-named TJ7101U, and Chery Automobile Co's (奇瑞汽車) perky QQ.

"They have pretty suitable small cars at reasonable prices," said Yale Zhang, an auto market specialist for consulting firm CSM Asia Corp.

The slowdown has hurt several major Chinese automakers, who reported lower first-quarter earnings this past week amid price cuts and slower sales that have taken some of the gloss off the world's fastest growing car market.

State-owned FAW Car Co (一汽轎車) reported that its net profit plunged to 22 million yuan (US$2.7 million) in the first three months of the year from 172.9 million yuan in first quarter of last year.

FAW is the biggest shareholder in Tianjin FAW Xiali Automobile, which reported a first-quarter net loss of 32.1 million yuan, despite the popularity of its oddly-named TJ7101U, an angular hatchback. It blamed higher costs and pricing pressures.

Chongqing Changan Automobile Co (重慶長安汽車), which has a partnership with Ford Motor Co, reported its first-quarter net profit fell by nearly half to 201.6 million yuan as first-quarter sales dropped 4.5 percent from a year earlier.

In results reported earlier, Brilliance China Automotive Holdings Ltd (華晨中國汽車控股), which makes BMW cars as well as minivans, said its net profit plummeted 95 percent on-year last year, while sports utility vehicle maker Great Wall Automobile Holdings Co's (長城汽車) net profit slipped 23 percent last year from a year ago.

Early bird Volkswagen AG, which launched a joint venture with Shanghai Automotive Industry Corp (上海汽車工業) in 1984, has seen its market share drop from more to less than 20 percent in the first quarter, from about half in 2000.

VW's profits in China fell to US$289 million last year from euro561 million a year earlier.

For the year, sales are forecast to rise 10 percent on-year, compared with 75 percent growth in 2003 and 15 percent last year.

Beijing Hyundai Motor Co (北京現代汽車), Hyundai's joint venture in Beijing, sold nearly 2.6 times as many cars in the first quarter as in the same period last year. Nearly 80 percent of its first quarter sales were Elantras -- up nearly 4.4 times on-year.

Geely, which makes compact hatchbacks like the Merrie and Haoqing, reported first quarter sales of about 30,000 cars, in line with plans for 24 percent sales growth this year to 120,000 units.