Geely warns of tough outlook

City A.M. Reporter
CHINA’S Geely, whose parent bought Ford’s Volvo unit this month, warned of tougher competition and slower sales after its record first-half earnings beat forecasts yesterday.

China overtook the United States last year to become the world’s biggest car market, as Beijing rolled out incentives to boost spending during the global downturn.

But that growth is expected to wane in the second half as the government presses the brakes to keep the economy from overheating.

Geely, which has been trying to move up the value chain by launching bigger and better quality cars in China, posted a 804.85m yuan (£76.61m) net profit for the first six months of this year against 595.91m yuan a year earlier.

The record profit topped an average forecast of 756.4m yuan from analysts.

The company sold 195,734 cars in the first six months, up 42 per cent from a year earlier. But its July sales growth turned negative, falling 12 per cent to 21,684 year-on-year.

Competition is rising in China as some car makers cut prices to boost sales, which have been slowing down from last year’s breakneck pace.

Founded by chairman Li Shufu, dubbed the Henry Ford of China, Geely said it will launch new and higher end car models this year and focus on building its export business to making it less vulnerable to China’s volatile domestic market.

Despite the dimming outlook for China’s car market, there is a potential bright spot for the carmaker -- its parent’s new Volvo unit.

If the Geely’s parent, Zhejiang Geely, can turn Volvo around, that could allow Geely to benefit from technology transfers and eventually take over the premium brand, said Man.

Volvo has been profitable since the start of the year, said Li Shufu, a big change for the luxury brand, which posted a $653m (£423m) pre-tax loss last year.