Shanghai Automotiveâs Q1 Profits Quadruples
By Michelle Krebs May 2, 2007Whenever anyone asks me which Chinese automaker is the one to watch, I donât hesitate: Shanghai Automotive Co.
The automaker has the best shot at success in China and outside of China because of its experience working in ventures with General Motors and Volkswagen. It understands design, manufacturing and retailing. More important, it has been exposed to the outside world in a way that many homegrown Chinese automakers have not. To that end, it has a better understanding than the others of what non-Chinese customers demand in terms of quality and reliability.
And it is profitable. The company just reported first-quarter profits more than quadrupled. When has anyone seen that in the auto industry?
The quadrupling of profits occurred largely because of a stock swap with its Shanghai Automotive Industries Corp. (SAIC), Chinaâs largest auto company that owns stakes in car-making ventures with GM and VW, the biggie foreigners in China.
Listed on the Shanghai Stock Exchange, Shanghai Auto reported net income rose to 1.16 billion yuan ($150 million), from a restated 245.6 million yuan a year earlier. Sales increased to 25.5 billion yuan from a restated 1.08 billion yuan, based on Chinese accounting standards. The company is listed on the Shanghai Stock Exchange.
Late last year, SAIC received 3.28 billion shares from Shanghai Auto in exchange for stakes in its 11 auto ventures, three parts-makers and an auto finance company. SAICâs stake in Shanghai Auto rose to 84 percent through the deal.
Together, SAIC and Shanghai Auto plan a 15 percent increase in sales in 2007; it sold 1.34 million vehicles last year. And itâs on its way. In the first quarter, GMâs two joint ventures with Shanghai Auto sold 26 percent more vehicles than a year ago. VWâs venture with the Chinese automaker saw a 56 percent increase in sales.
Last year, Shanghai Auto began selling its first self-branded car, the Roewe 750. As of April 20, it had sold 7,000 Roewe sedan this year. The Roewe sedan uses a Rover design purchased from the bankrupt MG Rover Group.
Shanghai Auto also has ambitious export plans. The rollout is to start in Europe before the U.S. Its biggest obstacle will be managing a car company on its own in a foreign market. However, Shanghai Auto has Phil Murtaugh among its top ranks. Murtaugh was with GM and is credited, in large part, with growing GM in China quickly and phenomenally.
Meantime, Shanghai Auto will stay busy at home as China's economy continues to grow. Last yearâs 10.7 percent growth rate was the fastest rate in 11 years, buoying auto sales. Vehicle sales are expected to rise to 9 million by 2010; 2006 sales were just over 7 million.
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