Profits in China's automobile sector dropped sharply in the first two months of this year due to declines in vehicle sales and prices in the domestic market and soaring costs, according to the National Bureau of Statistics.

The auto sector reported 3.5 billion yuan (US$422.7 million) in profits from January to February this year, down 61.5 per cent from a year earlier, said Jiang Yuan, an analyst from the statistics bureau.

The profits of more than 100 completed vehicle manufacturers dived by 78.4 per cent year-on-year to 1.28 billion yuan (US$154.6 million) during that period, Jiang said.

More than half of these vehicle producers were in the red in the period, he said.

Of the nation's top 34 automakers, 10 saw profits plunge and 13 made losses in the first two months of this year.

Profits in the spare parts and components segment slumped by more than 20 per cent in the period from a year ago.

This was the first year-on-year profits tumble in the spare parts and components segment in the past decade.

"This is a poor start for the auto sector and shows that a full-year profit slump will be inevitable in 2005 from last year," Jiang told China Daily.

He blamed the decline mainly on manufacturers' weakening vehicles sales and frequent price cuts.

Total sales of automobiles made in China amounted to 684,500 units during the period, down 6.94 per cent from the same period last year, according to industry statistics.

Sales of domestically-made passenger vehicles tumbled by 8.94 per cent year-on-year to 456,300 units from January to February this year.

Almost all of the car producers in China, including Sino-foreign joint ventures, cut prices to boost sales in the period.

In January, German firm BMW slashed prices of its 3 and 5 Series sedans, built at its joint venture in northeastern Liaoning Province, by 50,000-100,000 yuan (US$6,040-12,080), the biggest price cuts in the domestic car market so far this year.

"High steel prices and the strong euro are also eating at the profits of vehicle producers in China, especially European automakers' joint ventures," Jiang said.

Steel prices in the domestic market will remain on the bullish side this year buoyed by skyrocketing iron ore costs, according to officials from the China Iron and Steel Association.

Editor: Olivia