Chinese car manufacturers are expected to suffer steep profit declines this year due to excessive investment and a surplus of production capacity, eastday.com reported Tuesday.

Despite a surge in sales, the domestic auto industry will see a profit slump this year as sales have only taken-up 55 percent of production capacity, with over-investment being a problem, said Chen Qingtai, a researcher with the Development Research Center of the State Council.

The phenomenal growth of the domestic auto industry in 2003 misled many car manufacturers. Until recently, the Chinese car industry had a production capacity of eight million vehicles a year, with 2.2 million added this year. Moreover, auto-makers plan to increase capacity by a further 10 million. However, there is not enough demand to absorb the supply. A total of 5.5 million vehicles have been sold this year, only 55 percent of total capacity. Therefore, although car sales increased by 17.9 percent this year, profits were down 52.9 percent. Fifteen car makers reported losses this year, with eight registering profit reductions and only three seeing profit increases.

Intensified competition in the car industry has caused a growing number of mergers, acquisitions and restructurings, Chen said, adding that car manufacturers should turn to developing new technologies, such as new energy technologies.

(Shanghai Daily November 30, 2005)