SAIC Motor expects sharp slowdown in China vehicle market

SHANGHAI (Reuters) - The outlook for China's car industry had turned to neutral from positive, weighed down by factors such as rising inflation and weaker consumer confidence, the top executive of SAIC Motor Corp <600104.SS> said on Friday.

President Chen Hong also said he expects the country's overall vehicle market to grow 7.4 percent this year to 19.7 million vehicles, slowing down after expanding by nearly a third in 2010.

"The environment of China's auto industry has turned from positive to neutral, and there are signs of an obvious slowdown," Chen told a shareholders' meeting.

"Inflationary pressure is relatively high, consumer confidence is weakening, the government has exited incentive policies, oil prices keep rising and Japan's earthquake has impacted the supply chain."

Despite the challenges, SAIC will maintain its original sales target of 4 million vehicles for the full year given still relatively strong demand from consumers and as China's economy is still expected to grow 9.5 percent this year, Chen said.

China has been the world's biggest auto market for two consecutive years helped largely by Beijing's stimulus measures including tax incentives for small cars. Vehicle sales increased nearly a third to 18.1 million units last year, exceeding consensus forecast of 17 million units.

But the market has started to cool since January after the government stripped away most of the incentives.

SAIC's diversified portfolio has enabled it to hold up much better than most of its rivals so far this year, such as Chongqing Changan Automobile <000625.SZ>, which ended the first quarter with a 9.3 percent year-on-year decline in earnings due to weak mini-van sales.

SAIC, the Chinese partner of General Motors Co <GM.N> and Volkswagen AG <VOWG_p.DE>, said in April that it would buy auto assets worth 28.6 billion yuan ($4.4 billion) from its parent, part of efforts to create synergy and improve competitiveness.

(Reporting by Samuel Shen and Kazunori Takada; Additional reporting by Fang Yan in Beijing; Editing by Jacqueline Wong)