China Car Sales Driven Lower by Slowing Economy – Wall Street Journal
Sales of passenger cars slipped 3.4% to 1.42 million vehicles last month, following a 6.6% decline in July and a 3.4% fall in June. Combined sales of passenger and commercial vehicles fell 3% in August to about 1.66 million vehicles, the government-backed China Association of Automobile Manufacturers said Thursday.
After years of rapid growth, China’s auto market, the world’s largest, is stalling as the economy slows, the government’s crackdown on corruption continues and more cities curb car ownership to reduce congestion and pollution.
Foreign auto executives had forecast 2015 sales in China to slow to a high, single-digit percentage gain compared with 2014. But that estimate now looks out of reach. Growth in China’s economy, the world’s second-largest, is expected to fall to a more-than-two-decade low this year, and shares on the country’s exchanges have lost about 40% of their value since mid-June, despite concerted efforts by the government to revive buying.
China’s largest auto maker by sales, SAIC Motor Corp.
, has forecast zero growth in industrywide sales of passenger and commercial vehicles this year. The auto manufacturers’ group in July slashed its forecast for China’s auto market in 2015 to a 3% gain compared with last year, from a prior estimate of 7% growth.
The worse-than-expected slowdown has prompted global auto makers to cut production to match sluggish demand in China, the centerpiece of their growth plans.
SAIC General Motors—a joint venture between General Motors Co.
and SAIC Motor—built 21% fewer cars in August, according to a filing by the Chinese company to the local exchange, compared with a year earlier. SAIC Volkswagen—the German car maker’s joint venture with SAIC, built 24% fewer vehicles last month. Production at Ford Motor Co.
’s car-making joint venture was down 5.4% from a year earlier.
GM, VW and Ford all said they are adjusting production to balance supply and demand, but they continue to believe that the market will grow.
“We expect China to experience a period of falling pricing and profitability in the coming years,” said Robin Zhu, an analyst at Bernstein Research.
Despite the cut in production, dealers still struggle with high inventories. A recent survey of China’s more than 20,000 dealers by the China Automobile Dealers Association, a government-backed trade group, showed that at the end of July, dealers on average had inventories equal to 1.65 months’ sales, virtually unchanged from 1.68 months in June. In China, analysts regard 1.5 months of sales on lots as the “alert level” at which dealers should begin to be concerned about high inventory.
The weakness in auto sales also illustrated how Chinese consumers have grown more cautious amid an economic slowdown. A recent poll by research firm MNI Indicators showed that the planned car budget of Chinese families continued to trend lower in August, with the more expensive brands falling out of favor. The largest percentage of respondents indicated they wanted to buy vehicles priced in the 100,000 yuan to 140,000 yuan (roughly $15,700 to $22,000) range, while the budget tier below captured the second largest share of responses, said the survey.
Hoping to rejuvenate the economy, China’s central bank in August cut interest rates for the fifth time since November and lowered for the third time the amount of deposits banks must hold in reserves. The People’s Bank of China also slashed the required reserves that auto financing and leasing companies must hold to improve demand for cars.
Most car makers reported weak China sales for August. GM’s sales were down 4.8% from a year earlier, Ford’s were off 3.3% and Nissan’s fell 5.5%.
—Rose Yu and Lilian Lin