China Auto Maker SAIC Profit Gains in 1st Half on Joint-Venture Sale

SHANGHAI-- SAIC Motor Corp., China's largest auto group by sales, Wednesday said net profit rose 18% in the first half of the year because of strong sales at its joint ventures with Volkswagen AG and General Motors Co.

The Shanghai-based auto maker said net profit advanced to 13.6 billion yuan ($2.2 billion) for the six months ended June 30 from 11.5 billion yuan a year earlier.

Motor-vehicle sales by SAIC grew 12% to 2.86 million units in the period, outpacing the 8% gain recorded by the country's auto industry, according to the China Association of Automobile Manufacturers.

Cars built by Shanghai Volkswagen Co. and Shanghai General Motors Co. continued to be popular in China thanks to a perception that foreign brands have a significant edge over local players in manufacturing quality and safety. In the first half of the year, five of China's 10 best-selling cars were built by SAIC's joint ventures with VW and GM, data from industry group China Association of Automobile Manufacturers showed.

With the auto maker's foreign partners continuing to launch car models in China, analysts have been upbeat about SAIC's earnings growth and stock performance. Guotai Junan Securities forecast a 15% rise in SAIC's net profit this year and China International Capital Corp. raised its target price for the company to 22 yuan from 20 yuan. Shares of SAIC closed at 16.32 yuan Wednesday and have risen 15% so far this year.

Still, SAIC's earnings report illustrated the difficulties China's homegrown car brands are facing in competing with foreign car makers. SAIC's own brands--Roewe and MG--fared poorly, with sales down 3% in the first half compared with the year-earlier period.

China's domestic car makers have been struggling as foreign companies produce cheaper vehicles, moving into what used to be the realm of Chinese players. In recent weeks, Great Wall Motor Co., a leading maker of sport-utility vehicles, said its first-half net profit fell 3% from a year earlier, and Tianjin Faw Xiali Automobile Co., a compact-car maker, said it would report a net loss of at least 400 million yuan for the period.

At a recent meeting with SAIC's shareholders, Chairman Chen Hong said the company would establish a venture-capital firm in Silicon Valley to tap advanced technology in a bid to bolster its own brands at home. "Building a brand is an arduous job," the chairman said. "Chinese car makers must go upscale, otherwise the situation will be worse.

Rose Yu

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