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Market contraction deals heavy blow to Chinese automakers
Yang Jian | 2019/2/1

SHANGHAI -- China¡¯s auto market shrank in 2018 for the first time since 1990, with new-vehicle sales dipping 2.8 percent to 28.1 million. 

The contraction was not severe but it has created heavy financial pressure on Chinese automakers who have long been used to playing in a growing market. 

Several listed automakers in China have released financial estimates for 2018. Two of them warn of huge losses for the year.

With sales shrinking 52 percent to below 68,000, Haima Motor Corp., a small private light-vehicle manufacturer, said its financial loss in 2018 may have snowballed to 1.8 billion yuan ($269 million) from less than 1 billion yuan the previous year. 

Jianghuai Automobile Co., a state-owned automaker, recorded a net profit of 450 million yuan in 2017. But with deliveries falling 9.5 percent to below 463,000, it lost 770 million yuan last year, according to estimates. 

The market decline has also prolonged Ford Motor Co.¡¯s slump in China. As a result, its passenger vehicle joint venture partner, Changan Automobile Co., warned net profits will plunge up to 93 percent while its truck joint venture, Jiangling Motors Corp., says net profit may have dropped 87 percent in 2018. 

Even major domestic Chinese automakers can¡¯t escape the downturn unscathed. 

Two major Chinese automakers claim they made more money last year. 

SAIC Motor Corp., the state-owned automaker with light-vehicle joint ventures with General Motors and Volkswagen Group, estimates its net profit rose 4.6 percent to 36 billion yuan for the year. 

Privately owned Great Wall Motor Co., China¡¯s largest light-truck manufacturer, says its net profit advanced 7 percent to 5.4 billion yuan. 

But what drove the two companies¡¯ profit growth last year was not vehicle demand -- SAIC¡¯s sales rose only 1.8 percent to 7.1 million while Great Wall deliveries slid 1.6 percent to below 1.1 million. 

For SAIC, the profit driver was a one-time factor -- a gain generated by its parts subsidiary Huayu Automotive Systems Co.¡¯s acquisition of Skoito Automotive Lighting Co., a Shanghai automotive light maker. 

Without the investment return, SAIC¡¯s 2018 net profit would have declined 1.5 percent, according to the company¡¯s financial report.

For Great Wall, an accounting change, which allowed the company to treat part of 2018 r&d expenditures as an investment in assets, rather than a cost, helped pad profits. 

Despite the downturn, Beijing has so far refrained from implementing strong incentives, such as lower sales taxes on new-vehicle purchases, to stimulate market demand. 

Instead, the government plans to roll out a scrappage program for car shoppers in rural areas. It may help mothball older vehicles that pollute far more than today¡¯s more efficient cars and light trucks, but the program is widely seen as too mild to revive sales. 

That means the financial pressure facing Chinese automakers will persist at least in the near future. 

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