China's auto sector would record widespread declines in first-half profitability due to substantial price-cutting over the past year, analyst Yale Zhang of consultancy CSM Worldwide said.

Zhang made the comments after Chongqing Changan Automobile Co. Ltd., a partner of Ford Motor, and Shanghai Automotive Co. Ltd., the listed arm of Shanghai Automotive Industry Corp. (SAIC), both announced Friday that they expected first-half profits to be down by more than 50 percent.

"Overall prices from last April or May have been reduced by a lot, there has been a large price war and these sort of (profit) declines are only natural," Zhang said.

While he is expecting an across-the-board drop in profitability for the auto sector, he said the declines would vary from company to company, depending on each firm's key areas and cost-savings programs.

"For some companies we may see drops of 10-20 percent, but for others we may see much steeper declines (than those recorded by Changan and Shanghai Auto)."

Zhang, however, said prices were unlikely to come under further pressure and that more price cuts were not anticipated.

"The pricing situation is now not so serious and prices are close to customer expectations," he said.

He also said overcapacity concerns were not presently a great problem, as major producers such as General Motors, Hyundai and Honda were still operating at full capacity and achieving sales.

"Currently, I don't think capacity is an issue yet," Zhang said.

As well as Changan and Shanghai Auto, last month First Auto Works Corp. — which has joint ventures with Volkswagen and Toyota — also said first-half profits would be down by more than 50 percent.

(Shenzhen Daily July 5, 2005)