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China Slowdown Affects Auto Sales

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The sluggish economic growth in China is taking its toll on auto sales. According to the China Association of Automobile Manufacturers (CAAM), growth in total vehicle sales deteriorated to 9.8% in May from 13.4% in April. A total of 1.76 million vehicles were sold in the country during the month, leading to sales of 9 million vehicles for the first five months of the year, up 12.6% on a year-over-year basis.

CAAM also revealed that wholesale deliveries of cars, multipurpose and sport utility vehicles (SUVs) increased 9% to 1.4 million units in May, compared with 13% in April and 13.3% in March.

China’s economy seems to falter mainly with respect to exports. The economy grew at its slowest pace at 7.8% in 2012 considering the last 13 years and is on the verge of missing its growth target of 7.5%.

Exports in May dipped to its lowest level of 1% almost over a year as exports to China’s top two markets, U.S. and the European Union, continue to fall.

Among the U.S. automakers, General Motors’ (GM - Free Report) sales went up 9.4% to 252,942 vehicles in the month driven by strong demand for Buick cars. Ford Motor’s (F - Free Report) sales were impressive, soaring 45% to 70,540 units in May.

Japanese automakers continued to be the losers due to the political conflict between Beijing and Tokyo over disputed islands in the East China Sea. Sales of Japanese brands, including Toyota Motor Corp. (TM - Free Report) and Honda Motor Co. (HMC - Free Report) , fell 11.5% year-over-year in the first five months of the year, according to Xinhua news agency. Among them, Toyota sales grew marginally by 0.4% (for the first time since January), Honda sales increased 4.6% and Nissan sales inched up 2%.

In 2009, China overtook the U.S. as the biggest auto market in the world by sales volumes when the Beijing government introduced a stimulus package, including tax incentives for small cars.

However, the incentives were scrapped in 2011 and the Beijing government imposed quotas on new car registrations in order to control the traffic congestions. As a result, sales growth in China was lower at 4.3% compared with the projection of 8% growth by CAAM as well as with the double-digit growth in 2009 and 2010.

CAAM expects sales between 10 million and 11 million units for the first half of the year. The association believes SUVs will remain the fastest- growing segment in the year while commercial vehicles will record a moderate gain in sales.

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