China car sales fall for first time in 20 years

Bloomberg

The growth engine for the world’s car industry has been thrown into reverse, with China recording the first annual slump in auto sales in at more than two decades and more pain predicted in 2019.
Sales in the world’s biggest market fell 6 percent to 22.7 million units last year, the first annual decline in at least two decades, the China Passenger Car Association (PCA) said.
The unresolved trade war and a slump in Chinese stocks is putting off buyers, signalling more trouble for an industry where warning lights are already flashing worldwide.
The $12.2 trillion economy is under strain as mainland consumers tighten their belts, as shown by Apple Inc’s cut in revenue outlook this month because of slowing iPhone demand in China. The car industry — also affected by the rising popularity of ride-hailing services — has been particularly hard hit, prompting the government to prepare for stimulus measures to revive sales.
Manufacturers that spent billions of dollars adding plants and production lines in China in the past decades are now left asking if and when growth will return. A continued aggressive expansion would risk saddling the companies with excessive capacity, while a too cautious approach would hurt the companies’ ability to take advantage of
a rebound.
“Pressure on automakers is mounting,” said Cui Dongshu, secretary general of the PCA. “Declining car sales may speed up the process of squeezing out the incompetent players and we may see some of them exit the market next year.”
What’s happening in China is a reflection of the situation worldwide, with rising prices, political upheaval, dislike for diesel and new services such as car-sharing eating into auto demand in markets such as the UK and the US.
With the last great hope — China — also faltering, the global auto industry may already be in recession, according to RBC Capital Markets.
Sales volumes will probably fall 7 percent this year in China as the car market enters an unprecedented multi-quarter decline, Goldman Sachs Group Inc. predicted this week. Volumes may start to recover in 2020, rising 3 percent, the company forecasts.
The China Association of Automobile Manufacturers expects the market to be unchanged in 2019. While demand for gasoline cars wanes, rising sales of electric cars will probably help the overall market to avoid another slump, the association said in its outlook issued on December 13.
“Demand for vehicles is still there, yet it may take about three years for the market to pick up pace,” the CAAM said. “The overall uncertainties that may undermine car purchases include volatility in economic development and China’s trade relations with the US.”
The PCA, which tracks the auto retail market, has said it expects sales to rise 1.2 percent in 2019. Car-ownership restrictions in major cities including Beijing have been weighing on demand, and a possible relaxation of such curbs may help boost sales over the coming year, the association said.
In December, retail sales of sedans, multipurpose vehicles and sport utility vehicles plummeted 19 percent — the seventh straight monthly drop.

Expansion Plans
Manufacturers now need to decide whether to go through with costly expansion and modification plans. Ford Motor Co has said it plans to introduce more than 50 new vehicles by 2025 and increase local production for Ford and Lincoln brands in China. VW, the top foreign brand in China, plans to invest about $4.5 billion in the country in 2019 together with partners.
General Motors Co will continue to invest “wisely” in China and manage the capacity, which is sufficient to meet projected market demand over the next several years, a spokeswoman said.