The latest news from the Chinese car market, which has been one of the most reliable engines of global growth for decades,analysts warn that is a grave indicator for an upcoming recession. After a third month in declining sales Dealership purchases of passenger vehicles ,the China Association of Automobile Manufacturers said on Friday. And 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 on record.
Car purchases by dealerships declined 12% from a year earlier to 2.06 million units in September, the biggest drop on record.After September drop, the market is now up just 0.6% for the first nine months of the year, and the CAAM association said fourth-quarter comparisons from 2017 are challenging, read a year over year decline is virtually assured even though CAAM stuck to its prediction that the market will show growth for the full year.
The slump may be the biggest that auto manufacturers have ever experienced in China. Some carmakers may also be forced to shutter factories to reduce inventories and lower costs.
Oddly, the slowdown comes at a time when 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 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 expand local production of models including electric cars.
Tesla has also been trying for a big push to build its own factory in China to have a bigger share of the world’s largest electric-vehicle market. and to avoid paying rising auto import tariffs.
China’s slowdown is already hitting such names as General Motors which reported a 15% drop in China deliveries for the three months ended Sept. 30, the 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.
One of the big factors behind slumping demand is the phasing out of a rebate on purchase tax that was in place through last year. An increase in property prices are also weighing on demand, Xu Haidong, CAAM assistant secretary general, told reporters in Beijing.
The slowdown comes amid an escalating trade war between the US and China which have imposed rising tariffs on each other’s imports. And as retailers have been passing on the new taxes to consumers and Chinese markets sell off, this tit-for-tat spat has resulted in fears shoppers would rein in spending.
Making matters worse for global OEMs, the slowdown in China, where automakers invested billions in recent decades to build and bulk up factories, has left the industry struggling to find sources of growth on the planet. The trade war with the U.S. has prompted luxury-car makers BMW and Daimler to warn about lower profits, while Chinese consumers staying away from showrooms forced Jaguar Land Rover to shut a factory temporarily.
These concerns have materialized in the stock prices of both European and US carmakers, with the price of the EU auto sector sliding to a two year low, while the US auto sector has tumbled to the lowest level in nearly 6 years and worryingly the stock price of Ford recently plunged to the lowest level since November 2009.
How will China’s car dealers react to this sudden slowdown? The same way most other industries – both in China and in the US – respond in times of hardship: to plead the government to come up with fresh measures to help spur demand.