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 • homeChairman's Statement
Dear Shareholders,
       On behalf of the Board of Directors, I hereby present the annual report of the Company for 2016 for your review.
       In 2016, the transform and upgrade of Chinese economy, the changes in government policies and regulations on automobile industry and the high-profile cross boundary entry by intelligent network alliance have imposed significant impact on the industry. In particular, the development in new policies and regulations, new technologies, new ideas, new commercial activities and new business models, including the change in the policy of 50% reduction on purchase tax for passenger vehicles with displacement of 1.6L and below, the strict enforcement of GB1589 on commercial vehicles, the details of credits policies on CAFC and NEV becoming clear, the change in subsidies policies on new energy vehicles, and the emerging of electric vehicles, intelligent networked vehicles, networked sharing vehicles and crossover vehicles have brought about far-reaching impact on the current and future development of the automobile industry.
       In 2016, amidst the new economic situation and the implementation of new rules and regulations, the Chinese automobile market witnessed a record-high growth in sales volume of vehicles at 28,028,200 units, representing an increase of 13.7% as compared with the corresponding period last year. The increase rate was higher than expected at the beginning of 2016.
       In 2016, the Chinese automobile market had the following characteristics:
       1. Market concentration rate continued to decline. The top 10 players accounted for 88.3% of the sales volume in China, 1.2% lower than the corresponding period last year. The market concentration rate followed the downtrend since 2015.
       2. The commercial vehicle market was recovering, while the market share of passenger vehicles in the whole market reached a new high. The sales volume of commercial vehicles for the year was 3,651,300 units, representing an increase of 5.8% as compared with the corresponding period last year, which indicated a recovery from weakness scene in recent years; and the sales volume of passenger vehicles reached 24,376,900 units, representing an increase of 14.9% as compared with the corresponding period last year, with the market share at an all-time high of 87.0%.
       3. SUVs, MPVs and small-displacement vehicles became the drivers behind the rapid growth in the passenger vehicle market. Driven by the automobile consumption policies and consumer preferences, each sub-sector of SUVs, MPVs and small-displacement vehicles experienced a high sales volume growth, with growth rate at 44.6%, 18.4% and 19.9% respectively.
       4. Self-owned brands rose sharply, and the market share of joint-venture brands continued to decline. The sales volume of passenger vehicles under self-owned brands was 10,528,600 units, registering a record-high market share of 43.2%.
       5. The new energy vehicle sector was on a more sustainable track. With the modification by Chinese authorities in subsidies policies on new energy vehicles, the growth in the sales of new energy vehicles slowed down. However, the sales volume of new energy vehicles throughout the year still reached 507 thousand units, representing an increase of 53.0% as compared with the corresponding period last year. The modification of policies is expected to set the sector on a more regulated and sustainable path.
       6. The automobile market was facing an ever-changing competitive landscape. With the development of pilotless automobile and smart internet, the entry into the industry by dot-com companies and emerging commercial activities, the automobile industry was and will continue to be facing an ever-changing competitive landscape.
       In 2016, the sales volume of vehicles of Dongfeng Motor Group exceeded 3 million units due to our efforts on market research, focusing on customer values, targeted marketing and enhancing sales network, which marked a good start for the 13th Five-Year Period. In 2016, Dongfeng Motor Group witnessed a sales volume of approximately 3,156,800 units vehicles, representing an increase of 10.1% as compared with the corresponding period last year, with a market share of 11.3%; among which, the sales volume of passenger vehicles was approximately 2,787,700 units, representing an increase of approximately 10.6% as compared with the corresponding period last year; and the sales volume of commercial vehicles reached approximately 369,100 units, representing an increase of approximately 6.9% as compared with the corresponding period last year.
       In 2016, the Group recorded sales revenue of approximately RMB122,422 million, representing a decrease of approximately 3.3% as compared with the corresponding period last year. The profit attributable to shareholders was approximately RMB13,355 million, representing an increase of approximately 15.6% compared with the corresponding period last year.
       In 2016, the operation of Dongfeng Motor Group had the following characteristics:
       1. The production and sales of vehicle rose to a new high of 3 million units. The passenger vehicles and commercial vehicles maintained rapid growth momentum throughout the year, jointly pushing the sales volume of the Company to the new high of 3 million units for the first time, making the sales volume of the Company elevate to a new level.
       2. The operation quality was further promoted. Retail volume was higher than wholesale volume, inventory quantity and structure were optimized and sales network risks were effectively resolved.
       3. New development was marked in new energy vehicles and exports overseas. The sales volume of pure electric vehicles amounted to approximately 24 thousand units, representing an increase of 60.9% as compared with the corresponding period last year. Breakthrough was made in the transformation of overseas business of the Company. The export of self-owned brand passenger vehicles of Dongfeng has realized KD model. 32 thousand units of vehicles of Dongfeng Motor Group were exported overseas, representing an increase of 26.8% as compared with the corresponding period last year.
       4. Self-owned brands and joint-venture brands grew hand in hand. The sales volume of Dongfeng Passenger Vehicle Company reached over 150 thousand units, representing an increase of 50.5% as compared with the corresponding period last year; the sales volume of Dongfeng Commercial Vehicle Co., Ltd. reached over 133,200 units, representing an increase of 12.3% as compared with the corresponding period last year; the sales volume of Dongfeng Liuzhou Motor Co., Ltd. was 302,900 units, with the sales volume of commercial vehicles increased significantly; the sales volume of Dongfeng Nissan Passenger Vehicle Company reached 1,117,900 units; the sales volume of Dongfeng Honda Automobile Co., Ltd. exceeded 570,100 units, representing an increase of 40.3% as compared with the corresponding period last year.
       2017 marks a crucial year for implementing the 13th Five Year Plan and also a year for deepening structural reform on the supply side, in which challenges and opportunities coexist. On the one hand, China is confronted with an array of factors such as slowdown of GDP growth, intensifying market competition, rising price of bulk and raw materials, exchange rate fluctuation, change in travel modes, less favorable tax preference on passenger vehicle purchasing, stricter emission laws and regulations on commercial vehicle, which brought uncertainties to the operation of the Company. On the other hand, driven by such favorable factors as the accelerated progress of urbanization, rapid expansion of middle class, the 80’s and 90’s generations dominating the consumption group, the rising proportion of second-time automobile buyer, increasing demand of vehicle replacement and the tendency of intelligent network alliance, the automobile market will maintain the momentum of stable growth.
       Faced with new challenges and opportunities, Dongfeng Motor Group will strive to fulfill the following tasks:
       1. Accelerate the development of strategic layout. Dongfeng Motor Group will build an automobile service platform of network alliance to provide users with all-round automobile products and services of fine quality; actively develop auto financing business to promote its contribution to sales and accelerate the development of the layout for other parallel business to create new profit points; focus on the development of power batteries, electric engine, electronic control system of the new energy technology, intelligent network alliance and other business; and promptly unfold the layout of intelligent network alliance business.
       2. Focus on customer value and strengthening commodity force and marketing upgrade. Dongfeng Motor Group will focus on customer value and engrave customer awareness, commodity force awareness and cost awareness in mind as a value guide; strength commodity force by intensifying market research, improving insight into consumers and focusing concern on new urban citizens, quasi-two-children families, middle- class females and the 90’s generation, etc. who are quickly emerging as new consumption group, to have full understanding of consumption habits, automobile using preference and regional distribution of customers; set up the Group’s appraisal system of marketing capability and formulate marketing capability improvement scheme.
       3. Promote the independent innovation and the development of self-owned brands. Dongfeng Motor Group will strengthen international cooperation in innovation and actively integrate into global innovation network; accelerate the rebuilding of the leading advantages of commercial automobiles; act in quick response to new changes in market segment and constantly improve the product orientation to lightness, greenness and intelligence; devote great efforts to elevate the core capability of self-owned brand passenger vehicles, and constantly improve the quality of the same; accelerate the brand upward development and create strategic model and star products by diversifying the turbocharged models, with a view to boost the competitiveness of our vehicle model.
       4. Promote the healthy and rapid development of new energy vehicle business. Dongfeng Motor Group will cement the strategic cooperation with advanced enterprises at home and abroad and actively push forward eCMP plan; perfect commodity strategy of new-energy-driven vehicles and exert great efforts to the upgrading development of pure electric vehicles; set up the Group’s CAFC and NEV credit management system, strengthen its commodity portfolio and improve the CAFC Conforming Commodities Plan as set out in the 13th Five Year Plan.
       Confronted by the complex industry situation, Dongfeng Motor Group will further enhance the sense of mission and responsibility and continue to push forward the development of various businesses, unswervingly creating maximum return for our shareholders.
Zhu Yanfeng
Chairman
28 March 2017