Market slowdown to squeeze automakers' profit margins in China

An intelligent car attracts attention at the Beijing Internet High-tech Expo on May 19, 2016. [Photo/Xinhua]

BEIJING - Automakers in China will face greater pressure on their profit margins as the market slows and competition increases, ratings agency Fitch said Tuesday.

China will see annual growth in passenger vehicle sales slow to 5 percent over the next five years, due to economic slowdown and restrictive policies on car purchases and usage in top-tier cities, said Jing Yang, associate director of Asia-Pacific Corporates with Fitch Ratings, at a media briefing.

As a result, profit margins of both joint ventures and Chinese proprietary brands could fall, Yang said.

Demand from lower-tier cities will be the major growth catalyst, while sport utility vehicles (SUVs) will continue to gain market share from sedans, according to Fitch forecasts.

As competition in the SUV market increases, profit margins may fall for manufacturers that rely heavily on SUV business, Yang said.

Chinese auto sales growth peaked at 45 percent in 2009 and has fallen steadily since. Passenger vehicle shipments increased by 7.3 percent in 2015, slowing from 9.9 percent in 2014, according to China Association of Automobile Manufacturers.