China sold 1.51 million passenger vehicles last month, down 3.4% from a year earlier, the China Association of Automobile Manufacturers said Friday. “Our surveys of dealers show that visiting volumes to vehicle showrooms dropped sharply in the first-half”, said Mr. Dong. The Shanghai Composite is now off almost a quarter from its mid-June high, though stocks have staged a recovery over the past two days thanks to government intervention. Besides, the year-on-year growth extend for March was 3.3%, falling 5.9 percentage points from that of year earlier.
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That has fueled concern that the ripple effects of the weakened stock market could spill over into the nation’s vehicle sales market, which is a major source of growth for US, Japanese, Korean and German auto companies.
The three-week slump in Chinese equities is acting like a “meat grinder” for auto demand, with consumers canceling purchases, said Cui Dongshu, secretary-general of the vehicle association.
“Demand is clearly slowing in China and there is an oversupply issue with a brewing price war”, RBC Capital Markets analyst Joseph Spak said in a note to investors distributed this week.
That development would unfold as other important developing markets are already bleeding.
Volkswagen and General Motors are the two largest automakers in China.
The slowdown in China takes the problem to a whole new level because operations in that country are big profit contributors for Volkswagen, GM and their competitors.
The industry recorded the lowest year-on-year sales increase at 1.4 per cent since 2009 according to a Reuters review of monthly CAAM releases available from late 2008 onward.
“The stock market has some impact on consumers’ cash flow, and I noticed that fewer people visited [dealerships]”, Dong said. “We believe risk to GM earnings from China ops may be undepreciated given sharp pricing pressures”.
“Now the automakers are going to have to appeal to people who have less income and these are the people who have lost the most in the stock market”, she said, after spending years studying China’s incredible economic surge during the past 25 years.
Sales growth at Toyota Motor Corp dipped slightly to 10 per cent from 12 per cent over the same period. Thus is the case with the current Chinese market, bringing back memories of the dot-com crash in 1999.
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“Judging from the momentum, the second half is not looking too optimistic”, John Zeng, Shanghai-based managing director at researcher LMC Automotive, told Bloomberg.
