Cars Sales in China Hit the Brakes

Source: WSJ

The volume of new cars sold in China during the month of September has fallen to a mere 2.4 million. This is the third month in a row in which car sales have fallen. The unexpected deceleration has come during a massive slowdown in the Chinese economy and was seemingly unexpected by many of the world’s auto manufacturers.

Steep declines in sales have been reported by all manufacturers, but one of the worst hit was Ford, who saw their monthly sales drop by a massive 43%. Now, some analysts are saying that this could be the first time since the deregulation of the Chinese car market back in 1995 that the market will contract.

The Chinese car market is worth about 25% of total global car sales at present volume, so any meltdown there will have major repercussions for international car manufacturers, particularly as most have geared their companies to cater for an ever-expanding Chinese market. VW and GM have about 40% of their global sales in China and both are reporting double-digit sales reductions.

In part, the fall in sales may be a result of the economic slowdown in the market and also due to a regulatory crackdown on peer-to-peer lending, which has traditionally been a major source of funding for car buyers. No one is saying that the slow-down is in any way connected to Trump’s trade war with China, but when you consider that Geely Automobile Holdings is reporting a rise in sales by 14% compared to last year, the slowdown, particularly in sales of ‘foreign’ brands, may be a backlash against the US of A.

A car market contraction in China is brand new territory for anybody operating there, foreign or domestic. Whatever the reason for the slowdown, the world’s carmakers have been relying on the growth and profits from China, and a sudden drying up of revenues from the People’s Republic will hit them hard.

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