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In 2005, both vehicle sales and sales profits declined
In 2005, the Chinese automotive industry experienced a significant production surge, with a total of 2,958,400 vehicles manufactured, marking a 26.9% year-on-year increase. This growth was even more pronounced when compared to the previous year's figures, as it represented a 15.2 percentage point rise. Despite this positive momentum in production and sales, the sector faced challenges in profitability. Vehicle profits fell sharply by 38.4% compared to the prior year, pushing the sales profit margin below the average level seen across the broader manufacturing industry.
The rebound in car production and sales was largely fueled by a combination of affordable sedans and a low base in the second half of 2004. By the end of 2005, sedan production had surged by 53.1%, a dramatic jump from the 5.2% growth recorded in the first half of the year. However, this growth was not evenly distributed across all regions. Provinces like Anhui and Guangxi saw production increases of over 100%, while six other provinces, including Guangdong and Jiangsu, recorded growth rates above 50%. In contrast, several key regions such as Shanghai, Jilin, and Heilongjiang experienced declines in vehicle output, with some areas seeing two consecutive years of falling production.
Although passenger car production and sales rebounded strongly, the industry continued to face declining profits. Total vehicle profits dropped by 38.4% in 2005 compared to 2004, and the sales profit rate fell from 9.11% in 2003 to 6.85% in 2004, further dropping to 4% in 2005—well below the 4.46% average for the entire manufacturing sector.
Looking ahead, the introduction of lower automobile tariffs in 2006 accelerated the internationalization of the domestic auto industry, leading to increased competition and a rapid convergence with global standards. As a result, auto sales profit margins began to approach those of foreign markets. However, with an oversupply of vehicles in the market, the industry gradually moved toward average profit levels, losing the high margins it once enjoyed.
According to the report, 2006 is expected to see a more uneven growth trend in both car production and sales, with overall growth likely to be similar to or slightly lower than that of 2005. While vehicle profits are expected to recover after two years of decline, they will still struggle to reach the levels seen in 2003 and 2004. (Reporter: Huang Xiwei)