Car sales drop sharply due to world credit crisis

By Li Fangfang (China Daily)
Updated: 2008-10-20 08:00

At this time of year, China's passenger car dealers normally bask in a warm autumn glow, with September and October being the country's two best months for auto sales.

But, this year is different. The chilling winds of the global credit crisis, inflation and sinking consumer confidence are being felt on dealers' forecourts across the land.

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A man walks through a row of new cars at an automobile market in northern Beijing. China's passenger car sales dropped 1.44 percent year-on-year to 552,800 units in September due to fuel price hike, the slowing economy and the rising vehicle purchase tax. [China Daily]

China's passenger car sales fell in August from a year earlier, the first monthly decline in more than two years.

According to China Association of Automobile Manufacturers (CAAM), 451,300 cars were sold in the world's second-largest auto market in August, down 6.24 percent year-on-year.

Earlier this month, CAAM reported that sales continued to slide in September, with the monthly figure falling 1.44 percent from a year earlier to 552,800 units.

Sales growth in the sedan segment cooled from more than 20 percent in the first quarter to 10 percent in the second quarter.

"Too many adverse factors are putting a damper on auto sales this year," says Hui Yumei, an analyst from auto research firm Sinotrust.

"The readjusted vehicle purchase tax and higher fuel prices can be blamed for the unusual slowdown, as well as consumers delaying their purchases because of the expectation of a price cut after the Anti-Monopoly Law was implemented in August and their flagging enthusiasm in the slumping stock market," says Hui. "The Beijing Olympics also kept potential purchasers from showrooms."

Fuel prices rose on two occasions in the past few months, first in June by 20 percent and on October 7 by a further 4 percent in Beijing, in a bid to cut oil consumption and tackle pollution.

And, in an effort to drive more potential buyers away from huge gas-guzzlers, in September the central government hiked the sales tax on big cars, while cutting the levy on smaller vehicles, in an effort to curb fuel consumption and control emissions.

The tax on passenger vehicles with engines bigger than 4 liters was raised from 20 to 40 percent, while it was cut from 25 to 15 percent for vehicles with engines between 3 and 4 liters.

To encourage purchases of small vehicles, the tax on cars with an engine size at or less than 1 liter fell from 3 to 1 percent.

However, the government's supposed shot in the arm for sales of smaller autos appears to be a bit of a damp squib.

In August, the market share for passenger cars with engines at or smaller than 1 liter was a mere 7.67 percent.

Jin Yibo, a spokesman for Chery Auto Group, explains that the tax adjustment only cuts the price of more fuel-efficient cars by several hundred yuan, not enough to convince customers that smaller is necessarily beautiful.

The unexpected slowdown in sales has had an obvious impact on the market.

Mazda Motor Corp last month halved its sales forecast at a Chinese venture selling compact cars, admitting it goals were too high.

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