You are here

Carmakers to face more pain as sales in China continue to slide

file744p1n0p30owpjhpga8.jpg
China's car sales continued to decline in January after the first full-year slump in more than two decades, adding pressure on automakers counting on the country for profit growth as demand in other major markets wanes.

[BEIJING] China's car sales continued to decline in January after the first full-year slump in more than two decades, adding pressure on automakers counting on the country for profit growth as demand in other major markets wanes.

Wholesale passenger vehicle sales fell 17.7 per cent year-on-year to 2.02 million units last month, the seventh straight monthly drop for the world's largest market, the China Association of Automobile Manufactures said on Monday. That compares with a 15.8 per cent slump in December and 4.1 per cent for last year as a whole.

"Downward pressure is still there," Gu Yatao, a Beijing-based auto analyst with Roland Berger, said before the figures were released. "The government isn't adopting stimulating policies to give the market a shot in the arm."

The persisting slump leaves carmakers with few places to go for sales growth. Demand in Europe and North America is waning as the increasing availability of ride-hailing and car-sharing services makes it less necessary to own a car. Japan is sputtering too, while volumes in other smaller markets aren't enough to offset the declines in the biggest sales regions.

sentifi.com

Market voices on:

Sales in China continue to be suppressed as the world's second-largest economy slows and negotiations with the US for a trade-war truce drag on. Consumers stayed away from showrooms even with discounting by dealerships ahead of the Chinese New Year Holiday.

The first half of 2019 will continue to see downward pressure, as a purchase-tax cut in effect in 2016 and 2017 prompted many consumers to purchase vehicles earlier than planned, and now have no need to buy, said John Zeng, managing director of LMC Automotive Shanghai, before CAAM released the figures.

Car manufacturers that spent billions of dollars adding plants and production lines in China in the past decades are now uncertain if and when growth will return. The economic and geopolitical hurdles are prompting the companies be more cautious with their annual sales targets.

Geely Automobile Holdings Ltd targets sales of 1.51 million cars this year, an increase of just 0.7 per cent from 2018. Volkswagen AG, the No. 1 foreign manufacturer on the mainland, is expecting further growth for the company this year, but has predicted the overall Chinese market to shrink in the first half.

Jaguar Land Rover Automotive Plc's problems in China forced its parent to take a US$3.9 billion writedown this month. Daimler AG and BMW AG reduced profit forecasts last year amid pressures from the US-China trade war that's hit auto demand, while Hyundai Motor Co said last month it's letting workers go as it reviews production plans in the country.

What's happening in China is a reflection of the situation worldwide, with rising prices, political upheaval, dislike for diesel and new services such as Uber and Lyft eating into auto demand in markets such as the UK. and the US.

In Europe, car sales declined for a fifth straight month in January, while in the US the top four premium car brands all posted sales declines last month to deepen a slump that began taking hold near the end of 2018. US President Donald Trump has threatened a tariff of as much as 25 per cent on imported autos, risking a further hit for vehicle demand.

The association expects the market to be little changed in 2019. Last month, the government announced measures to spur car demand but the move fell short of expectations and lacked details.

Carmakers are now increasingly placing their bets on electric vehicles, which are gaining popularity amid China's environmental policies. The state introduced stringent rules to promote the sale and production of greener cars, with major manufacturers facing penalties unless they meet quotas for zero- and low-emission cars or buy credits from other companies that exceed the quotas.

The China Passenger Car Association, another industry group, is scheduled to release the retail sales figures for passenger vehicles in January later Monday.

BLOOMBERG