GAC Group forecasts huge decline in profits

Updated: 2013-01-29 07:26

By Li Fangfang (China Daily)

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Guangzhou Automobile Group Co Ltd, the Chinese partner of Toyota Motor Corp and Honda Motor Co Ltd, predicts a substantial net profit decline for 2012 in its preliminary fiscal performance review.

An analyst said the Chinese automaker's waning business performance should be largely attributed to the Japanese brands' falling market demand due to the tensions over the Diaoyu Islands.

GAC Group said it expects its net profit for 2012 to be between 850 million yuan ($135 million) and 1.28 billion yuan, down from 4.27 billion yuan in 2011.

In its statement, it said the sharp drop in profits is the result of the poor performance of its Japanese joint ventures, Guangqi Honda and Guangqi Toyota, as well as newly established facilities' still under construction, increasing market competition and a purchase limitation policy launched in Guangzhou, its home market.

Guangqi Honda and Guangqi Toyota, its major joint ventures, saw sharp sales declines in 2012, with Guangqi Honda already reporting a year-on-year sales drop of 12.7 percent.

GAC Group forecasts huge decline in profits

Zhong Shi, an independent auto analyst based in Beijing, said: "The anti-Japanese anger that broke out in mid-September was the main reason behind the bad performance of the GAC Group, as the Guangzhou-based company relies too much on the two Japanese joint ventures."

Toyota, Japan's largest automaker, reported this month that its sales in China dropped 4.9 percent to about 840,000 vehicles in 2012, with sales in December falling for the sixth consecutive month, to 90,800 vehicles.

Honda's sales in 2012 fell 3.1 percent to 598,577 vehicles in China, while Nissan sold 1,181,500 vehicles in the market in 2012, down 5.3 percent for a year earlier.

Yale Zhang, head of Shanghai consulting firm Automotive Foresight, told China Daily: "Optimistically, if Sino-Japanese diplomatic relations improve, Japanese automakers might see a slight increase from last year in sales by the end of 2013."

However, from a long-term perspective, "Japanese automakers have a bleak future in the Chinese market as it's almost impossible for them to compete with Volkswagen, General Motors and Hyundai", Zhang said.

Zhong Shi said: "Other than the uncertainties in the future relationship between China and Japan, which will bring continued impact to its Japanese joint ventures, the locally produced models are also losing their competitive edge compared with German-branded vehicles."

Zhong added: "GAC Group experienced an enviable time when its locally produced Honda Accord and Toyota Camry topped China's best selling models list several years ago. However, it has a gloomy future without leaping forward technologically."

(China Daily 01/29/2013 page17)