Published On: Fri, Oct 12th, 2018

The world’s largest car market faces a historic drop

BEIJING—China’s car market has been one of the most reliable engines of global growth for decades. Now that all might be coming to an end.

Purchases of passenger vehicles by dealerships plunged for a third straight month, an industry group said Friday. With trade ties with the U.S. worsening by the day and car sales barely up for the year already, the industry is now facing the prospect of its first contraction since at least the 1990s.

A slowdown in China — where automakers poured in billions of dollars in the past 20 years to bulk up factories — leaves the industry struggling to find growth anywhere on the planet. A trade war with the U.S. has already prompted luxury-car makers BMW Group and Daimler AG to warn about lower profits while Chinese consumers staying away from showrooms forced Jaguar Land Rover to shut a factory temporarily.

The economic standoff between the U.S. and China escalated last month when President Donald Trump slapped a 10 per cent duty on $ 200 billion (U.S.) of Chinese imports, and said the levy will jump to 25 per cent in 2019. China said it would retaliate with levies on $ 60 billion worth of U.S. goods. As retailers pass on the duties to consumers and Chinese markets sell off, the tit-for-tat spat has raised concerns shoppers would rein in spending.

Passenger-car purchases by dealerships declined 12 per cent to 2.06 million units in September, the China Association of Automobile Manufacturers said. That leaves the market up just 0.6 per cent for the first nine months of the year, and the association said fourth-quarter comparisons from 2017 are challenging. Still, CAAM stuck to its prediction that the market will show growth for the full year.

The slump may be the biggest auto manufacturers have ever experienced in China, the world’s largest car market, said Steve Man, a senior analyst at Bloomberg Intelligence in Hong Kong. Weaker brands may be hit disproportionately, and such companies will need to cut prices to drum up sales, Man said. Some carmakers may also be forced to shutter factories to reduce inventories and lower costs, he said.

The slowdown comes just as global brands are making a bigger push into China, helped by the government opening up the economy. BMW on Thursday 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.

The German luxury-car maker is also among Western brands still boosting manufacturing capacity in China and expanding local production of models including electric cars. Tesla Inc. is pushing ahead with plans to set up production in China to gain a bigger slice of the world’s largest electric-vehicle market.

General Motors Co., the largest U.S. carmaker, reported a 15 per cent drop in China deliveries for the three months ended Sept. 30, its first quarterly report since the trade tensions with the U.S. began escalating in July. Volkswagen AG and Honda Motor Co. also reported declines in deliveries.

Demand has also been hurt by the phasing out of a rebate on purchase tax that was in place through last year. Unexpected hurdles such as an increase in property prices are also weighing on demand, Xu Haidong, CAAM assistant secretary general, told reporters in Beijing.

China’s car dealers are now pushing the government to come up with fresh measures to help spur demand, including changes to the way value-added tax is levied on used cars. CAAM has no current plans to urge policy-makers to stimulate demand, Xu said.

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The world’s largest car market faces a historic drop