Plunging bus sales are causing Liaoning Shuguang (SG) Automotive Group Co Ltd to focus new attention on passenger vehicles this year.
SG is a major bus maker in China famous for its Huanghai brand.
The first-quarter financial report of the Shanghai-listed company stated that sales of SG's Huanghai buses decreased by 62 percent year-on-year to 514 during the first three months of this year, while revenues dropped by 72 percent to 182.2 million yuan.
The company realized a gross profit of 115.3 million yuan in 2008, while its target in 2009 is 99.3 million yuan, according to the company.
"Sales of commercial vehicles such as buses declined sharply during the global financial crisis. The situation of the industry in general is similar to ours," said Zhang Fengjun, SG's chief technical director.
Bus sales in China dropped 36.38 percent to 23,495 in the first quarter in 2009, according to ChinaBus.Info, an Internet-based authority on the country's bus industry.
SG plans to enlarge production capacity of passenger vehicles, citing a 15 percent increase in sales nationwide in this sector during the first four months of 2009.
In May 2008, SG invested 810 million yuan in building a production base in Dandong. The facility is expected to produce 60,000 passenger vehicles a year.
"This year we will also launch a new model of pick-up truck especially for the rural areas as a response to the government's stimulus package," Zhang said.
The price of the truck will be less than 40,000 yuan, and is designed to replace existing agricultural vehicles.
SG hopes to grow sales of its pick-up trucks from 12,000 in 2008 to 20,000 this year.
In the bus sector, SG's major business, the company is adjusting its structure to reflect market changes.
SG has a production base in Dandong for its Huanghai buses with an annual capacity of 8,000 vehicles.
A new base in Changzhou in Jiangsu province will open this year with the capacity to produce 6,000 buses each year.
Zhang said the Changzhou base is an important addition to the Dandong facility.
"Buses produced in Dandong are mainly big ones from 10 meters to 12 meters long. Buses that will be made in Changzhou are shorter, from six meters to seven meters," Zhang said.
Since sales of big buses were hit especially hard, SG is paying more attention to smaller ones and targeting sales to small and medium-sized cities, Zhang said.
"The development of high-speed railways in China greatly affects sales of buses, but it's not worthwhile to build such railways in most small and medium-sized cities when considering the cost and returns. We plan to produce buses in Changzhou especially for those cities," Zhang said.
Another reason to build the Changzhou base is to cut transportation costs, he said.
"If we transport a bus worth 300,000 yuan from Dandong to Shenzhen, the gross profit is about 30,000 yuan, while the transportation cost is several thousand yuan. But if we transport a bus from Changzhou to Shenzhen, the cost of transporting the bus will be much lower," he said.
SG developed two models of energy-saving buses in 2008, and they will be put into large-scale production this summer.
Changzhou will become an important production base for the energy-saving buses, SG president Li Haiyang said.
Zhang said technology and costs remain challenges for this sector.
"The energy-saving buses will not become the mainstream in the next few years. In the meantime, I think the government should offer more policy support," Zhang said.
