SHANGHAI -- The main Chinese partner of Japan's Toyota Motor Corp. posted a fall of 79 percent in second-quarter net profit on Tuesday, hit by sliding car prices and higher raw material costs.
Tianjin FAW Xiali Automobile Ltd., which makes Toyota's Vios sedan, said gross profit for the first nine months of 2004 would drop more than 50 percent, underscoring how Beijing's efforts to rein in breakaway economic growth are hurting the country's car market.
Xiali, which also makes other cars, is a unit of state-owned First Automotive Works, China's largest maker of cars, buses and trucks. The two have stakes with Toyota in the joint venture to make Toyota cars.
"The main reasons for the profit fall were fierce market competition, rising raw materials' prices and the appreciation of the Japanese yen," it said in a report published on the Shenzhen stock exchange's Web site www.cninfo.com.cn.
Net profit for the three months ended June 30 fell to $7.46 million, from $36 million in the same period last year, based on Reuters calculations from previous figures.
The fall came despite a 22 percent rise in second quarter turnover to $192 million.
Car sales in China rose 1.6 percent in July from June to snap a three-month decline. Growth is expected to slow to 10 to 20 percent this year after nearly doubling to 2 million units in 2003, as Beijing clamps down on credit to parts of the economy in danger of overheating on the back of alarmingly high investment.
That has helped prompt price wars in China, where multinationals are pumping in some $13 billion to bump up production to about 6 million cars a year by the end of the decade, sparking fears of a glut.
A reduction of its stake in the joint venture with Toyota to 33.12 percent from 50 percent also slashed earnings, Xiali said.
"Reductions in our company's costs were unable to offset the slide in sale prices of our products," the company said.
First-half net profit also dropped 79 percent on the year to $9 million despite a 16.3 percent rise in turnover to $374 million, it said.
Tianjin Xiali sold 59,302 cars in the first half of this year, up 6.11 percent from the year-earlier period, with output rising 6.63 percent to 68,865 units, it said.
First Automotive Works also operates a venture with Germany's Volkswagen AG in the northeastern city of Changchun.
Toyota, the world's second-biggest automaker, is a relative latecomer to a rapidly growing auto market where Volkswagen, General Motors and Honda Motor Co. Ltd. have been making cars for years.
Under a wide-ranging deal between FAW and Toyota, which signed a pact to make 300,000 to 400,000 cars by 2010, Xiali would make up a crucial production base for both partners.