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Sino-French car joint venture Dongfeng Peugeot Citroen Automobile Co posted a 21 percent plunge in first-half profit due to its slow sales and heated price wars in China's passenger car market.

The venture, 50-50 held by PSA Peugeot Citroen and Dongfeng Motor Corp, took in 39.5 million euros in operating profit in the first six months, down from 50 million euros in the same period of last year, according to the French carmaker's interim report.

Its profit margin also slid during the period, down to 4.4 percent compared to 5.6 percent in the first half of last year, the report said.

The profit tumble can be attributed to its slack sales that were dragged down by heated market competition, analysts said.

January-to-June sales for the venture, based in the Central China city of Wuhan, were 103,000 cars, a 2 percent rise from a year ago.

The growth was much lower than the 26.3 percent surge in overall passenger car sales in China, which hit 2.55 million units in the period.

"Dongfeng Peugeot Citroen's tiny sales rise was really a failure amid the blistering pace of the entire market, which, of course, hurt its profit," said Li Chunbo, an auto analyst with CITIC Securities Co in Beijing.

Sources close to the venture told China Daily that it had slashed its 2007 sales goal to 230,000 cars from 260,000 units.

The company's sales last year jumped by 43.7 percent to 202,500 cars, helping it turn an operating profit of 84 million euros, compared with losses of 54 million euros in 2005.

"Its plight this year indicates that it has big problems in management and marketing, although it now has many fairly good products," Li said.

The venture is making the Citroen Fukang, Elysee, C-Triomphe, Xsara, Picasso and C2, as well as the Peugeot 307 and 206.

Li said acute price battles and rising material costs also squeezed Dongfeng Peugeot Citroen's profit in the first half.

Almost all carmakers in China have slashed prices of their products this year.

Following suit, the venture cut prices for the Peugeot 307 by as much as 19,000 yuan in April.

Cheshi.com.cn, a Beijing-based website tracking auto prices nationwide, predicted earlier this month that passenger car prices would drop by 6 percent in December compared with January.

Dongfeng Peugeot Citroen in January announced it intends to cut costs by 1 billion yuan this year.

It now has an annual production capacity of 300,000 cars.

It is also building a second plant with a capacity of 150,000 units a year in Wuhan that will assemble high-end Peugeot and Citroen sedans beginning in 2009.

(China Daily July 27 2007)