SHANGHAI -- The Chinese partner of Volkswagen and Toyota said on Thursday it will not meet its profit target for 2005 after a dismal first half, as price cuts squeeze margins in the competitive market.
First Automotive Works, based in the frigid northern city of Changchun, saw first-half sales of 456,600 units, less than half its stated full-year target of 1.07 million vehicles, the company's spokesman said.
"It's too early to say now whether we can hit the (2005) volume target at this stage," the executive said. "The market is too fickle."
China, once an easy profit center for global carmakers such as General Motors, has become one of the industry's most intense battlegrounds, prompting firms to slash prices and launch models to lure customers back to the showroom.
First Auto, the country's top vehicle maker which also has a venture with Mazda Motor Corp., had profits of 18 million yuan ($2.18 million) in the first half of this year, the spokesman said.
He declined to offer comparative figures but the automaker reaped earnings of 4.5 billion yuan in 2004.
"We only made 18 million yuan in the first half, far off the annual target set at the beginning of the year," he said.
He declined to reveal the target, but said it was lower than the previous year's profits.
First Auto, the purveyor of VW's Jetta, Audi and Bora sedans, sold about 1 million units in 2004.
In April, FAW Xiali Automobile Ltd., the First Auto venture with Toyota Motor Corp. that makes Vios and Corolla sedans, posted a 32 million yuan loss in the first quarter, after a whopping 92 percent plunge in 2004 net earnings blamed on price cuts.
Global automakers are spending $15 billion to triple annual capacity to more than 7 million cars by 2008, which has sparked fears of an impending glut.
Analysts have said car sales are expected to grow 10 percent to 15 percent this year, matching growth in 2004 but well off a doubling in 2003.