BMW partner warns of profit slump

An assembly line at the Shenyang-based Brilliance China Automotive Holdings Ltd. As the partner of BMW AG in China, the company expects first-half profit to fall about 40 percent as demand for premium cars slows in the world's largest auto market. [Photo/Xinhua]

The partner of BMW AG's joint venture in China expects first-half profit to fall about 40 percent as demand for premium cars slows in the world's largest auto market.

Brilliance China Automotive Holdings Ltd dropped 9.4 percent to HK$10.28 ($1.3) in Hong Kong trading on Tuesday, after warning about higher expenses in a statement to the stock exchange. The benchmark Hang Seng Index slid 0.4 percent.

The profit warning is the latest sign that demand in China for luxury cars is declining amid a slowdown in economic growth and volatility in the stock market.

BMW had extended financial assistance and cut production to lower excess inventory, after its dealers complained of mounting losses.

"According to our dealer checks, recent volatility in the A-share market has led to some cancellation of passenger vehicle orders with the premium segment more affected than mass market brands," Yang Song, a Hong Kong-based analyst at Barclays Plc, wrote in a report.

Declining prices, higher dealer subsidies and costs of introducing new models also added to costs in the first half, Song said. BMW remains confident in the Chinese market despite the projected decline in profit by its joint venture partner.

"The mid-and long-term conditions and prospects for the Chinese car market continue to be attractive," BMW said in a statement. "These include the low rate of car ownership, an expanding middle class, our strong market position and the continuing growth of the premium segment."