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Car sales in China dip for sixth month in a row; may undo decades of growth

Retail sales of sedans, multipurpose vehicles and sport utility vehicles plummeted 18% to 2.05 million units in November

Bloomberg 

car manufacturing

in plunged for a sixth consecutive month, intensifying pressure on global automakers that have staked their future growth on the world’s largest auto market.

of sedans, multipurpose vehicles and sport utility vehicles plummeted 18 per cent to 2.05 million units in November, the Passenger Car Association said on Monday. That brought the drop in the first 11 months of the year to 4.3 per cent, all but ensuring the market will have its first annual decline in at least two decades.

With the trade war with the U.S. showing no signs of abating and slumping stocks weighing on consumers’ purchasing power, the market that global carmakers have relied on for growth since the 1990s now risks an extended decline. Demand is also sputtering in Europe and North America, leaving auto brands few places to go for growth.

Automakers -- which poured in billions of dollars in the past 20 years to bulk up factories in -- now need to view future expansion plans in a different light. The trade war with the U.S. has already prompted luxury-car makers and to warn about lower profits while Chinese consumers staying away from showrooms forced to shut a factory temporarily.

Carmakers’ hopes of a truce in the trade war were boosted last week as President Donald Trump’s tweet claiming that China had agreed to “reduce and remove” tariffs on American-made vehicles. Still, China didn’t confirm this and Trump’s advisers were left scrambling on how to explain the tweet.

Market Shift

Beyond a slowing economy, the rising popularity of car-sharing and is reducing the need for individuals to buy vehicles. Shared autos used by popular ride services such as Didi Chuxing will account for 30 per cent of China’s passenger vehicles and majority of miles traveled by 2025, according to a forecast by Bill Russo, founder and CEO of Shanghai-based consultancy Automobility Ltd. They currently account for 13 per cent of passenger vehicles.

The slowdown has pushed China’s car inventory levels to a record high. An index tracking the volume of unsold cars reached its highest ever reading in November, based on data from the

China is also escalating its crackdown on peer-to-peer lending, a move that could hardly have come at a worse time for carmakers and dealers. It dropped 20 per cent in the first half of this year and may shrink even further as policy makers push small- and medium-sized operators to close, according to data compiled by 01Caijing and AskCI Corp.

Bigger Push

The challenges are emerging just as global brands are making a bigger push into China, helped by the government opening up the economy. BMW in October revealed a $4.1 billion deal to secure control of its Chinese joint venture, becoming the first automaker to take advantage of China’s policy to let foreign companies own a majority holding of their local partnerships. Daimler is interested in making a similar move, people familiar with the matter said last week.

Western brands are also boosting manufacturing capacity in China and expanding local production of models including electric cars. is pushing ahead with plans to set up production in Shanghai.

Longer term, carmakers are betting that growth will return as China’s middle class expands and new electric models will lure consumers back to showrooms. Volkswagen AG, the top foreign auto brand in China, expects the market to be unchanged next year before returning to growth in 2020, its China chief Jochem Heizmann said last month.

First Published: Tue, December 11 2018. 07:17 IST
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