New cars in a parking lot in Shenyang, Liaoning province, China. Picture: REUTERS
New cars in a parking lot in Shenyang, Liaoning province, China. Picture: REUTERS

Beijing —China’s car sales fell the most in nearly seven years in September, stoking concerns the world’s biggest car market could contract for the first time in decades this year amid cooling economic growth and a biting trade war.

Vehicle sales slumped by 11.6% to 2.39-million units last month, the third straight decline, the China Association of Automobile Manufacturers (CAAM) said on Friday. It cited a sluggish economy, deleveraging and a tough pollution crackdown as reasons for the steep fall.

A stalling of China’s giant automotive sector will be a concern for the country’s leaders in Beijing. It is a major driver of the economy and an important barometer of Chinese consumers’ willingness to open their purse strings. “The automotive industry has been a driver of China’s economic growth for years. Now it is pulling back,” Xu Haidong, CAAM assistant secretary-general, said at a briefing in Beijing.

China’s top automotive industry body said its already meagre forecast for full-year growth would be missed, though the market should avoid a sales decline. Analysts have predicted the market could contract this year for the first time since at least the early 1990s.

The downtrend in sales underscores how international car makers, from General Motors (GM) to Toyota Motor, are in for a tough ride at a time when they are increasingly looking towards China as a driver of growth. It also exemplifies the impact of the trade war, with cars being among the sectors hardest hit by tariffs. CAAM said last month that sales were impacted by a sluggish economy and the knock-on effects of the trade war.

The market has been growing non-stop every year for more than 20 years, and those companies make plans based on growth. They don’t know what to do and worry about survival.
Yale Zhang

China’s economic malaise has seen the domestic stock markets plunge and the country’s factory sector stall last month after more than a year of expansion. The International Monetary Fund (IMF) also cut China’s growth forecast for next year to 6.2% from 6.4%.

Beijing, concerned about the slowdown, has already opened the taps to boost liquidity in the market.

The slide in September vehicle sales follows a 3.8% fall in August and a 4.0% drop in July. Vehicle sales increased 4.8% in June.  September’s drop was the most since a 26.4% tumble in January 2012, which was in part due to the timing of the China New Year holiday that year.

Sales for the first nine months of the year totaled 20.49-million vehicles, up 1.5% from the same period a year earlier. CAAM’s Xu said that 2018 sales growth would miss the association’s previous forecast of a 3% rise. Sales were also up 3% last year, but sharply down from a 13.7% gain in 2016.

Amid the slowdown, an army of Chinese car dealers is feeling the squeeze and is pushing for government support to revitalise growth. 

Yale Zhang, head of Shanghai-based consultancy Automotive Foresight, said that if sales actually shrink this year it would be a “watershed moment” for the industry. “It’s very alarming and is even causing panic among some car makers and suppliers. That’s because the market has been growing non-stop every year for more than 20 years, and those companies make plans based on growth. They don’t know what to do and worry about survival.”

Winners and losers

GM, one of the most successful global car makers in China for decades, said earlier this month that September sales were down a sharp 14.9% from a year earlier. German car maker Volkswagen (VW) said earlier this week that China sales were down 10.5% last month.

Ford Motor, which has been struggling to turn around falling sales in the market, said on Friday that September sales in China were down 43%.

China’s broader economic woes have led to a particular slowdown in the demand for cars in smaller, lower-tier cities across China, some car makers have said, which, until now, were the engine of growth for the country’s auto industry.

Zhang of Automotive Foresight said that several factors had combined to cause this, including high gas prices this year which had stymied growth in lower-tier cities. The industry is also facing a shake-up as decades-old rules change to allow foreign car makers to own majority stakes in local joint ventures. Luxury German car maker BMW said on Thursday that it would take control of its main China venture in a $4.2bn deal.

The changing automotive landscape is throwing up distinct winners and losers in the market, a major shift from the golden years of growth where most players were guaranteed decent returns. Among those struggling in China the most are Peugeot, Hyundai Motor and its sister brand Kia Motors, Ford and Japanese car maker Honda Motor.

Sales of new-energy vehicles — a category comprising electric-battery powered cars and plug-in electric hybrid vehicles — remained strong, up 54.8% in September, slightly faster than a month earlier. This took new-energy vehicle sales in the first nine months of the year to 721,000 vehicles, up 81.1% from the same period a year earlier.