China's SAIC sees slower growth in fragile car industry recovery

SHANGHAI, March 27 Thu Mar 27, 2014 8:35am EDT

SHANGHAI, March 27 (Reuters) - China's biggest automaker SAIC Motor Corp forecast revenue growth would halve in 2014 from last year to about 8 percent and warned a recovery in the industry remained fragile due to overcapacity and cut-throat competition.

SAIC, which owns ventures with Volkswagen AG and General Motors Co, said it aimed to generate 609 billion yuan ($98.08 billion) in revenue this year, against 563 billion yuan last year.

"In the next few years, China's auto industry will continue to suffer from overcapacity, fierce price competition and rising labour and other costs," SAIC said in a statement via the Shanghai Stock Exchange.

China's vehicle market, the world's biggest, slumped to near-zero growth between 2011 and 2012 as government sales incentives introduced during the global financial crisis expired. A recovery in the domestic economy helped sales rise 13.9 percent last year; they are expected to grow 8-10 percent in 2014, says the China Association of Automobile Manufacturers.

But SAIC warned the market was still unsteady.

"The company may face challenges posed by fluctuations in the macro-economy, the market, as well as changes in policies," it said, referring to an increasing number of cities imposing car sales restrictions in an escalating battle against pollution.

SAIC posted a 19.5 percent rise in net profit to 24.8 billion yuan ($3.99 billion), helped by robust sales at its ventures with Volkswagen and General Motors. Analysts polled by Reuters had forecast a net profit of 23.25 billion yuan.

It said it sold 5.1 million vehicles last year, up 13.7 percent year on year, bolstered by a 21.7 percent sales rise at its venture with Volkswagen and a 15.5 percent increase at its car making venture with GM. It aims to sell 5.6 million vehicles in 2014.

SAIC has been funnelling cash generated from its joint ventures, which accounted for over 90 percent of total vehicle sales by volume in 2013, into developing its own brands, including Roewe and Morris Garages (MG).

The Roewe brand was developed based on technology from MG Rover while the MG brand was indirectly purchased from the now-bankrupt British carmaker.

SAIC's new energy car business was given a boost last month after the Roewe E50 electric car was granted access to the Beijing and Tianjin markets. Buyers of Roewe 550 plug-in electric vehicles in Shanghai became eligible for free car plates as well as subsidies worth 60,000 yuan. However, revenue from electric cars will be likely remain negligible for now. ($1 = 6.2094 Chinese Yuan) (Reporting by Samuel Shen and Kazunori Takada; Editing by Sophie Walker)