The investment of 10 billion SAIC's own brand still "can't afford it"

With more than 10 billion investment, SAIC Motor (600104.SH), which is known as "preliminarily established a global R&D system," has suffered from a decline in sales volume and a substantial drop in gross profit margin.

According to the annual report recently announced by SAIC, the company sold more than 4 million vehicles in 2011, an increase of 12% year-on-year, and continues to lead the major auto groups in China, which is 9.5 percentage points higher than the average level of Chinese auto companies. However, SAIC Motor's sales growth in 2011 was mainly contributed by Shanghai Volkswagen Group and Shanghai GM, two of its joint ventures. The self-owned brand had little gains. The sales of self-owned brand passenger cars with heavy investment were only 1% in 2011. What is more noteworthy is that the sales and sales data released by SAIC Group in February showed that the sales volume of the Shanghai Automobile Passenger Vehicles Branch, which mainly sells its own brands, even experienced great dips at the beginning of this year. The cumulative sales volume in the first two months was only 23,600 units, up from the same period of last year. A sharp drop of 25%. The output was only 19,000 vehicles, a year-on-year drop of 43%. At the same time, sales of Shanghai Volkswagen and Shanghai GM continued to grow at a relatively fast rate, accumulating more than 10% in the first two months.

While SAIC Group's own brand sales have fallen sharply, the gross profit margin of this segment has also dropped significantly. In 2010, SAIC Motor's parent company reported operating income of 18.883 billion yuan and gross profit margin of 18.5%. However, according to the 2011 annual report, the gross profit margin in the parent company report was 12.6%, a decrease of 5.9 percentage points. Comparable, the gross profit margin of many self-owned brand car companies is generally higher than that of SAIC Motor's own brand. According to the data, in the first half of 2011, Great Wall Motor (601633.SH), which specializes in SUVs, has a gross profit margin of 24.9%, and BYD (002594.SZ) also achieved 17.2%. The staff of SAIC Securities Department explained to the “Securities Market Weekly” that “The decline in the gross margin of self-owned brands was mainly due to the adjustment of the company's product structure. Last year, the sales volume of Roewe 350 models increased, but the price of Roewe 350 was relatively low, and the gross profit rate was not high. Roewe 550, which has a strong profitability, accounted for a decline in sales, resulting in an overall decline in the gross margin of self-owned brands."

In fact, SAIC Motor's description of its own brand in the 2011 annual report has been significantly reduced. In 2010, the company also stressed that "the development of independent brands adheres to the path of 'starting from a higher starting point and cutting through the mid-to-high end of the segment' to establish a high-end brand image." However, by the 2011 annual report, this road to differentiation is no longer mentioned. Although the self-owned brand did not make a profit, SAIC Motor did not weaken its enthusiasm for investing in its own brand. SAIC Group said in its annual report that future investment projects will focus on its own brands. Among them, the self-owned brand passenger car project will invest more than 6 billion yuan, plus construction projects such as self-owned brand commercial vehicles and technology centers, SAIC will invest more than 10 billion yuan.