SHANGHAI -- Toyota's partner in China posted a third-quarter loss on Friday, swinging into the red for the first time since 2002 after slashing prices to try to galvanize slowing car sales and writing off unsold inventory.
Tianjin FAW Xiali Automobile Ltd., which makes Toyota Motor Corp.'s Vios and Corolla sedans, said it would see earnings fall by at least half in 2004, the latest victim of Beijing's efforts to cool a racing economy.
Xiali, China's third-largest car maker by market value, posted a net loss of $5.28 million in the quarter vs. a profit of $14.10 million a year ago.
Turnover slid 15.6 percent to $133 million.
"Our profitability weakened after we cut prices in August," Xiali, which also makes the eponymous sedan and Beijing's red taxis, said in its report.
"Fierce competition will push our 2004 earnings down by more than 50 percent."
Xiali also wrote off a heavy $43.5 million of inventory in the first nine months of 2004, it said without giving a quarterly breakdown.
Car sales have decelerated since March when Beijing began to slap curbs on auto loans as part of efforts to slow the economy.
The market is expected to grow just 10 percent to 20 percent this year after nearly doubling to 2 million units in 2003.
A margin-slicing price war is also hammering profits: General Motors offered 11 percent discounts on its cars in May before rival Volkswagen AG countered by hacking prices by up to 11.7 percent in June.
Hence, Changan Auto, China's top minivan maker and Ford Motor's carmaking partner, posted a 31.8 percent slide in third-quarter net profit.
Shanghai Automotive, which owns a fifth of GM's flagship plant in China, saw earnings dive 23 percent in the quarter.
Toyota, the world's second-biggest automaker, is a relative latecomer to the world's fastest-growing auto market in 2003, where Volkswagen, GM and Honda Motor Co. Ltd. have been fighting it out for years.
Xiali's parent First Automotive Works, China's largest maker of trucks, buses and other vehicles, had agreed with Toyota to make up to 400,000 of the Japanese company's cars by 2010, under which Xiali would serve as a production base for both partners.
Xiali said net profit plunged 94 percent to $3.59 million in the first nine months, though turnover rose 6 percent to $507.5 million.
It made 94,517 cars in the first three quarters, down 0.22 percent from the same period of last year, and sold 86,258, up 2.71 percent, it said in its quarterly report.
In September, nationwide car output fell 7.8 percent to 177,400 units, according to official data -- the first year-on-year fall in output since China joined the World Trade Organization in 2001.