Declining competitiveness & Haima’s loss

Despite negative impacts of global economic downturn, China's auto industry still grew rapidly with the help of some favorable policies including half purchase tax concessions for cars whose displacement is or below 1.6 liters and the considerable demands of consumers. Nevertheless, under such a good market environment Chinese auto manufacturer FAW Haima Automobile Co., Ltd. yesterday still posted first auto share pre-loss report of the past three quarters in 2009. The company estimated that it would have a loss of 170 million RMB to 200 million RMB from January to September in 2009. In contrast to other auto manufacturers' profit, conditions of Haima accelerated to deteriorate, which made many industry people and investors feel puzzled or surprised.

　　Loss of more than 70 million in third quarter (Q3)

In its report Haima said that global financial crisis has made the competition of auto industry becoming rather fierce and thus its car sales dropped sharply compared with the same period of last year. From January to September 2009, Haima’s car sales and prices declined at the same time. As a result its revenue inevitably dropped about 15% compared with the same period of last year in the past nine months. Haima’s loss could be 170 million RMB to 200 million RMB, earning negative 0.18 to negative 0.21 RMB per share. Especially in the third quarter, Haima lost 70 million to 100 million RMB. However, in the first three quarters of 2008 it achieved net profit of 2.9 million RMB.

The company explained that it had extracted about 150 million RMB of loss on inventory according to relevant rules. In fact, it Haima an investment income of 39.36 million RMB by issuing new shares in 2008, but the figure declined sharply to 2.32 million RMB influenced by the security market.

Before Haima released the Pre-loss report, China Association of Automobile Manufacturers had just released a gratifying sales data: from January to September of 2009, China’s auto output and sales respectively reached 9.6127 million and 9.6627 million units, an increase of 32.01% and 34.24% compared with the same period of last year. Meanwhile, passenger car market showed an explosive growth. Sales of passenger cars in a single month first surpassed one million units and the growth rate is more than 40% compared with last year, also a record in the recent years.

Meanwhile, Shanghai Automotive, Changan Automobile and other Chinese mainstream auto manufacturers also released their reports with an estimate of substantially profit increase. Changan Automobile estimated that its net profit could increase by 130% to 150%. Even DONGAN HEIBAO CO.,LTD which was in long-term poor performance before predicted its net profit would increase by 3000% compared with the same period of last year. Industry people generally expected that with gradual release of the three quarterly reports an increasing numbers of Chinese auto manufacturers would post profit increase.

　　Analysts: declining competitiveness is the main reason

"Such a big pre-loss is definitely amazing. Although Haima has extracted 150 million of loss on inventory, the big drop of its car sales and car prices are abnormal under the good market environment. I think the declining competitiveness of Haima is the real reason for its poor performance, "pointed by an industry people.

People at Haima yesterday told reporters of National Business Daily that besides the loss on inventory, decline of car sales and prices also contributed to its big pre-loss in the past three quarters. Reason why Haima’s car sales declined was its new car models mainly introduced in the second half of 2009. In April and May Haima only introduced a new car model. Meanwhile the people at Haima revealed the company would launch 2-3 new cars at the end of this year and early next year.

Auto industry analyst of United Securities Co.,Ltd. Yao Hongguang told reporters of National Business Daily that this year China’s auto industry showed a substantial increase in car production and sales and the overall car prices are pretty stable. Poor performance of Haima reveals its products are gradually losing appeal to consumers and its brand influence has declined sharply. In addition, the company's failure to timely introduce new car models shows it has some problems in execution. After a thorough break with the Mazda, shortcomings of the haima’s independent research ability and insufficient technical reserves are becoming increasingly evident. In such circumstances, the company should try to avoid market risk in the process of introducing other new cars. (Translator Qinghua Wade)