Bloomberg BEIJING (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 more than two decades — though progress in trade talks and planned government incentives offer a ray of optimism.
Sales in the world’s biggest market fell 6 percent to 22.7 million units last year, the China Passenger Car Association said Wednesday. The trade war and a slump in Chinese stocks have put off buyers in an industry where warning lights are already flashing worldwide.
Automotive demand has been particularly hard hit by the trade tension that’s strained China’s $12.2 trillion economy — prompting the government to prepare stimulus measures to revive sales. Chinese automakers rose Wednesday on the announcement, while Germany’s Daimler AG, BMW AG and Volkswagen AG also gained amid progress in trade talks between China and the United States.
Manufacturers that spent billions of dollars adding plants and production lines in China in the past decades are uncertain 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 their 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 Britain and the United States. 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 Dec. 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 United States.”
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 Wednesday.