1Q 2005 GM's Chinese Partner Net to Fall

SHANGHAI, April 9, 2005; Reuters reported that Shanghai Automotive Co. Ltd., owner of a fifth of General Motors' main Chinese car plant, said on Saturday it expected first quarter net earnings to drop more than 50 percent due to weak car sales.

"Sales in the domestic auto market were not up to the mark, and revenue and investment income fell compared to the year-ago period," Shanghai Auto said in a statement on the Shanghai stock exchange's Web site (www.sse.com.cn).

"We expect net profit to fall over 50 percent in the first quarter of 2005 on the same period in 2004," it said, adding rising raw material costs were also a worry.

Shanghai Auto, whose parent is China's largest car maker, Shanghai Automotive Industry Corp (SAIC), posted a 131 percent jump in net profit in the first quarter of 2004 to 710.67 million yuan ($85.86 million), riding a car industry boom in China.

But car sales in the world's third-largest vehicle market began slowing in the second quarter of last year, when Beijing stepped up curbs on easy car loans and implemented other measures to cool the economy.

Before that, sales had averaged double-digit growth as the newly rich snapped up vehicles.

Analysts say more than half of Shanghai Auto's profit is generated from its stake in GM's main Chinese unit, which is based in the city.

Shanghai Auto is an auto parts maker and the sole listed unit of its parent. Its yuan-denominated A shares, open to selected foreign investors, slid 9.1 percent in the first quarter, underperforming a 6.7 percent drop in the stock market .

Earlier this month SAIC won regulatory approval to shift its 70 percent stake in the listed firm to another unit preparing to list overseas or at home in a public offering that could raise as much as $2 billion in 2005 or beyond.

China's largest auto makers suffered a near 8 percent slide in car sales in the first quarter from the year-earlier period, although they enjoyed a 73 percent jump in car sales in March from February, when the annual Lunar New Year holidays had dampened demand.

GM, Honda Motor Co, Ford Motor Co. and BMW AG all slashed prices in the first quarter.

Slowing Chinese sales have added to the woes of GM, which has been losing money in Europe for years and warned last month that its 2005 earnings would be as much as 80 percent lower than forecast due to a slump in North American auto sales.

GM's net earnings from China in the fourth quarter plunged 68 percent to $33 million -- accounting for some 5 percent of total net earnings of $630 million, down dramatically from about a fifth in the third quarter.

But the company says market share in China, its second largest market, has climbed from just over nine percent at the end of 2004 and it expects double-digit growth this year.