Automakers say China market in new normal of slower sales growth

[MUMBAI] China's auto sales growth is slowing to a "new normal" with Bayerische Motoren Werke to Honda Motor trimming their prices to sustain demand.

BMW will reduce production in the quarter that began this month and has cut prices on some models to adjust to the trend, Karsten Engel, the automaker's China chief, said. Ford Motor is seeing some pricing pressure in China, according to Chief Executive Officer Mark Fields.

Carmakers including Volkswagen have cut prices in China by as much as 10 per cent in recent weeks, Sanford C. Bernstein said in a report Monday. The Shanghai auto show starting this week will be marked by discussions about further price cuts and arguments with dealers about sales targets as growth slows, according to the note.

"China is the single most important determinant of auto industry earnings," Max Warburton, senior analyst at Sanford C. Bernstein, wrote in the report. "BMW is the only OEM to have warned explicitly about China so far, but we expect others to follow." Vehicle sales in China are forecast to expand 7 per cent this year, less than half the pace achieved in 2013.

VW won't beat the industry sales growth this year because it's missing out on a surge in demand for budget-priced sport utility vehicles and minivans, Jochem Heizmann, the automaker's China chief, said Sunday in Shanghai.

Rising incomes and low ownership rates helped make China the largest auto market in the world in 2009, surpassing the US at a time when the American economy was mired in recession. With Europe also in the doldrums and Japan facing a shrinking population, global automakers looked to China as a source of growth.

Domestic and foreign-based carmakers are building more factories in China than anywhere else, a construction binge that risks hurting margins in what remains one of the world's most profitable vehicle markets.

Mass-market brands have been affected by the increasing number of cities putting in place registration caps to combat pollution, while a campaign against corruption and extravagance has crimped sales of luxury cars.

"We tended to talk about China as an emerging market, and what we're seeing now are actions in the marketplace which are more like a developed market," Ford's Fields told reporters on the sidelines of the show Monday.

Honda is feeling the most pressure to trim prices in the mid-size sedan segment and offering discounts of about 5 per cent, said Seiji Kuraishi, chief of the company's China unit. Lexus is cutting prices by about 7 per cent, though the reductions vary by model, said Tetsuya Ezumi, executive vice president for China.

A price war between companies will become the norm in China, according to BAIC Motor, which has joint-venture partnerships with Hyundai Motor and Daimler.

"It's like walking on a single-plank bridge," Liu Yu, the head of BAIC's sales unit, said in an interview. "Fights will go on until the end."

BLOOMBERG