Manufacturing News

Brilliance China issues profit warning as slowing economy dings partner BMW

Brilliance China Automotive Holdings, which makes BMW cars in China, issued a profit warning on Monday, citing slowing sales in the world's biggest car market.

Brilliance, which makes minivans for China's domestic market and assembles luxury cars for BMW via its joint venture with the German carmaker, said it expects first-half profits to fall 40 percent from a year earlier mainly because of lower results from its 50-percent stake in BMW Brilliance.

"The decrease in BMW Brilliance's profit was caused by the higher selling costs incurred during the first six months of 2015 as a result of the slowdown in the growth of the Chinese economy and the automotive industry," Brilliance said in a statement to the Hong Kong Stock Exchange.

Brilliance's profits, which are highly dependent on the joint venture's earnings, would be roughly 2.2 billion yuan ($354.38 million) for the first half of 2015, according to a Reuters calculation.

The company could not immediately be reached for comment on that figure. Brilliance China's condensed consolidated income in the first-half of 2014 was 3.6 billion yuan.

BMW Brilliance also faces higher costs as it prepares to launch new models and new production facilities, according to the filing.

Global automakers including BMW, General Motors and Ford Motor Co. have cut prices on Chinese models in recent months to combat weak sales growth as the country's economy slows to its slackest pace in 25 years.

In January, BMW agreed to pay 5.1 billion yuan to auto dealers in China, who have pressured the world's top luxury carmaker to share the cost of overstocked showrooms.

BMW has been hit by a slowing Chinese economy where cut-throat competition leaves its ageing product range increasingly exposed. Its 7-series limousine for instance, on the market in China since 2009, competes with a new version of the Mercedes S-Class, which was launched in late 2013.

BMW reiterated on Monday that China would remain an important market.

"BMW has consistently said the high rates of growth seen in the Chinese market cannot be sustained indefinitely," BMW said in a statement, adding that the company took action to address business developments earlier in the year.

"Irrespective of the situation we believe that China remains an attractive market in the medium to long term," BMW said.

A major China dealer group told Reuters last week that it had to resort to deep discounts to prop up sales at a dozen of its BMW dealerships, while also putting a freeze on new hires and salary hikes.

Brilliance said it plans to publish its unaudited half-year results in August.

Under China's foreign ownership rules, China requires automakers to produce cars domestically via joint ventures with the foreign partner owning a maximum of 50 percent.

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