Profits in China's automobile sector dropped sharply in the first two months of this year owing to declines in vehicle sales and prices in the domestic market and soaring costs, according to the National Bureau of Statistics (NBS).

The auto sector reported a combined 3.5 billion yuan (US$422.7 million) in profit in the January-February period this year, down 61.5 percent from a year earlier, said Jiang Yuan, an analyst from the NBS.

The profits of more than 100 automakers dove 78.4 percent year-on-year to 1.3 billion yuan (US$154.6 million) during the period, Jiang said, putting more than half of them into the red.

Of the nation's top 34 automakers, 10 saw profits plunge and 13 reported losses in the first two months of this year.

Profits in the spare parts and components segment slumped more than 20 percent from a year ago, the first year-on-year decline in a decade.

"This is a poor start for the auto sector and shows that a full-year profit slump will be inevitable in 2005 from last year," Jiang told China Daily.

He blamed the decline mainly on manufacturers' weakening vehicle sales and frequent price cuts.

A total of 684,500 units made in China were sold during the period, down 6.9 percent from the same period last year, according to industry statistics.

Sales of domestically made passenger vehicles slipped 8.9 percent year-on-year to 456,300 units.

Almost all of the car producers in China, including Sino-foreign joint ventures, cut prices in an effort to boost sales.

In January, BMW slashed prices of its 3 and 5 Series sedans, built at its joint venture in northeastern Liaoning Province, by 50,000 to 100,000 yuan (US$6,000 to 12,000), the biggest price cuts in the domestic car market so far this year.

"High steel prices and the strong euro are also eating at the profits of vehicle producers in China, especially European automakers' joint ventures," Jiang said.

Domestic steel prices will remain on the bullish side this year, buoyed by skyrocketing iron ore costs, according to the China Iron and Steel Association.

(China Daily April 4, 2005)