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In 2005, both vehicle sales and sales profits declined
In 2005, the Chinese automotive industry experienced a significant increase in car production, with a total of 2,958,400 units manufactured, marking a 26.9% year-on-year growth. This represented a 15.2 percentage point rise compared to the previous year. Despite this surge in output, the sector faced challenges as vehicle profits continued to decline for the second consecutive year, dropping by 38.4% and falling below the average profit margin of the broader manufacturing industry.
The rebound in production and sales was largely driven by the popularity of economical sedans and a low base in the latter half of 2004. By the second half of 2005, sedan production grew at an impressive rate of 53.1%, far outpacing the 5.2% growth seen in the first half of the year. However, the growth was not evenly distributed across 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, production in regions such as Shanghai, Jilin, and Heilongjiang declined, with some areas experiencing two consecutive years of falling output.
Despite the strong rebound in passenger car production and sales, profitability remained weak. Total vehicle profits fell by 38.4% from the previous year, with the sales profit margin declining sharply from 9.11% in 2003 to 6.85% in 2004 and further to 4% in 2005—below the 4.46% average for the entire manufacturing sector.
As automobile tariffs were reduced in 2006, the domestic auto industry moved closer to global standards, accelerating its international integration. With increased competition, sales profit margins began to align more closely with foreign levels. However, under conditions of overcapacity, the industry gradually shifted toward average profit levels, losing the high margins it once enjoyed.
According to the report, 2006 is expected to bring a mixed performance in terms of car production and sales, with overall growth likely to be similar to or slightly lower than that of 2005. While auto industry 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)