China's top automaker SAIC Motor Corp expects to top its full-year earnings forecast, banking on its diversified vehicle range, even as it projects overall growth in the country's vehicle sales to slow rapidly this year owing to inflation.
President Chen Hong said on Friday he expects the country's overall vehicle market to grow 7.4 percent this year to 19.7 million vehicles, slowing after an expansion in 2010 of nearly a third. SAIC is the Chinese partner of General Motors Co and Volkswagen AG.
"The environment of China's auto industry has turned from positive to neutral, and there are signs of an obvious slowdown," Chen told a shareholders' meeting.
"Inflationary pressure is relatively high, consumer confidence is weakening, the government has exited incentive policies, oil prices keep rising and Japan's earthquake has impacted the supply chain."
Despite the challenges, SAIC will maintain its original sales target of 4 million vehicles for the full year given still relatively strong demand from consumers and as China's economy is still expected to grow 9.5 percent this year, Chen said.
SAIC has said that it expects net profit to rise to about 17 billion yuan ($2.6 billion) this year after asset injection, from 16.3 billion yuan in 2010.
However, Chen said that the forecast is a conservative one, and even after taking into account all the negative elements the industry is facing, the actual result should be better.
MARKET COOLING
China has been the world's biggest auto market for two consecutive years, helped largely by Beijing's stimulus measures including tax incentives for small cars. Vehicle sales increased nearly a third to 18.1 million units last year.
But the market has started to cool since January after the government stripped away most of the incentives. A few pessimists, such as Rao Da, head of the semi-official China Passenger Car Association, have even projected a more than 10 percent fall in auto sales for the full year.
SAIC's diversified portfolio has enabled it to hold up much better than most of its rivals so far this year, such as Chongqing Changan Automobile , which ended the first quarter with a 9.3 percent year-on-year decline in earnings due to weak mini-van sales. [ID:nL3E7FQ04X]
SAIC Chairman Hu Maoyuan said it was necessary for the company to actively transform its growth model in line with the changing environment.
"A study of the global auto industry shows that profit would gradually move from manufacturing to R&D and services," Hu told the same gathering. "SAIC must follow this trend closely."
SAIC said in April that it would buy auto assets worth 28.6 billion yuan ($4.4 billion) from its parent Shanghai Automotive Industry Corp (Group), part of efforts to create synergy and improve competitiveness. [ID:nL3E7F521L]
It started production of its MG 6 sedan in Britain in mid-April, making it the first Chinese automaker to manufacture and sell vehicles in a mature market. ($1 = 6.491 yuan) (Additional reporting by Fang Yan in Beijing; Editing by Jacqueline Wong and Muralikumar Anantharaman)