China vehicle sales post biggest drop in nearly 7 years as slowdown bites

By Yilei Sun and Norihiko Shirouzu

BEIJING (Reuters) - China's vehicle sales slid 11.6 percent in September in their worst monthly drop in nearly seven years, as slowing economic growth and a deepening Sino-U.S. trade war took their toll on the world's largest auto market.

Vehicle sales fell for the third straight month in September to 2.39 million units, the China Association of Automobile Manufacturers (CAAM) said on Friday, citing a sluggish economy, deleveraging and a tough pollution crackdown for the steep fall.

China's top auto industry body also 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 in decades.

 

The downtrend in sales underscores how international car makers, from General Motors 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 autos being among the sectors hardest hit by tariffs. CAAM said last month sales were impacted by a sluggish economy and the knock-on effects of the trade war.

China's economic malaise has seen the domestic stock markets plunge and the country's factory sector stall last month after over a year of expansion. The International Monetary Fund also cut China's growth forecast for next year to 6.2 percent from 6.4 percent.

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

The slide in September auto sales follows a 3.8 percent fall in August and a 4.0 percent drop in July. Vehicle sales increased 4.8 percent in June.

September's drop was the most since a 26.4 percent 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 totalled 20.49 million vehicles, up 1.5 percent from the same period a year earlier.

Xu Haidong, CAAM assistant secretary general, told a briefing that 2018 sales growth would miss the association's forecast of a 3 percent rise. Sales were up 3 percent last year, but sharply down from a 13.7 percent 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 as concerns grow that the huge market could see its first annual sales decline in decades.

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 automakers and suppliers. That's because the market has been growing non-stop every year for more than twenty years, and those companies make plans based on growth," he said.

"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 percent from a year earlier. German car maker Volkswagen AG said earlier this week that China sales were down 10.5 percent last month.

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

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.

"Small-tier market consumers buying cheaper cars are very price sensitive and have begun delaying purchases. That's why this is a big concern," he said.

This pressure is now creating 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 Co Ltd.

Sales of new-energy vehicles - a category comprising electric battery cars and plug-in electric hybrid vehicles - remained strong, up 54.8 percent in September, slightly faster than a month earlier.

That took new-energy vehicle sales in the first nine months of this year to 721,000 vehicles, up 81.1 percent from the same period a year earlier.

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 it would take control of its main China venture in a $4.2 billion deal.

(Reporting by Yilei Sun and Norihiko Shirouzu; Additional reporting by Shanghai newsroom; Editing by Adam Jourdan and Muralikumar Anantharaman)