GM General Motors Company

SHANGHAI—SAIC Motor Corp., China's largest auto maker by sales, said Thursday its first-half net profit rose just 4.4% from a year earlier, reeling from slowing sales volumes and falling car prices.

The small profit gain, which is in line with analysts' estimates, contrasts with the 18% rise the company posted in the year-earlier period. As China's slowing economy slammed the brakes on the world's largest market for cars, SAIC's joint ventures with General Motors Co. and Volkswagen AG have both cut car prices to rev up sales.

Looking into the second half of this year, SAIC, which owns nearly a quarter of China's auto sales, sounded a pessimistic note for the industry. "In the short term, the domestic auto market situation will remain grim," it said, estimating zero growth in industrywide sales of passenger and commercial vehicles this year.

China Association of Automobile Manufacturers, a government-backed industry group, has slashed its forecast for China's auto market in 2015 to a 3% gain over last year from 7% after auto sales notched a mere 1.4% rise in the first half.

Shanghai-based SAIC said net profit for the six months ended June 30 totaled 14.2 billion yuan ($2.2 billion), up from 13.6 billion yuan in the year-earlier period. The gross margin for car-making fell to 8.2% from 10.3%.

SAIC attributed the weak financial results to China's stock market, which it said diverted cash and pushed back spending, as well as declining demand for sedans amid a slowing economy.

China's economy, the world's second-largest, is growing at its slowest pace in decades, and shares on the country's exchanges have lost 40% of their value since mid-June despite concerted efforts by the government to revive buying.

In a bid to rejuvenate the economy, China's central bank Tuesday cut interest rates for the fifth time since November and lowered for the third time the amount of deposits banks must hold in reserves. The People's Bank of China also significantly slashed the required reserves that auto financing and leasing companies must hold to boost demand for cars.

Most auto executives had forecast 2015 sales in China to slow to a high, single-digit percentage gain over 2014, but that now looks too optimistic. Sales of foreign branded cars, which account for nearly two-thirds of China's market, fell 1.5% in the first half from a year earlier, compared with booming double-digit percentages in prior years.

SAIC and its foreign partners sold a total of 2.86 million vehicles in the first half, flat compared with the year-earlier period. The auto maker said in March it aimed to sell 6.2 million vehicles this year.

Shanghai Volkswagen, SAIC's joint venture with the German car maker that builds VW branded cars, reported a 0.3% rise in sales volumes in the first half of this year, while Shanghai GM, which makes Chevrolet, Buick and Cadillac brands, posted a 4.8% decline. Sales of SAIC's own brands—Roewe and MG—extended losses, falling 33% in the first half compared with a 3% decline in the same period last year.

At a time of intense competition and cooling demand at home, SAIC is looking for more opportunities to sell its vehicles abroad. In February, the company and GM announced a tie-up in Indonesia, where they will build a plant to produce low-cost minivans. The vehicles will be sold primarily in Indonesia, though they could be exported to other markets in the Association of Southeast Asian Nations in the future.

Rose Yu

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(END) Dow Jones Newswires

August 27, 2015 08:45 ET (12:45 GMT)

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