Why China auto sales are falling, and what happens next

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The slowdown of growth is just as global brands are taking a bigger push to China, aided by the government to open up the economy. Pictured is a Ford dealer in Shanghai. Photo credit: BLOOMBERG

BEIJING – The Chinese car market has been one of the most reliable engines of global growth for decades. Now there may be an end to it.

Purchases of passenger cars & # 39; s by dealer companies collapsed for a third consecutive month, according to an industry group Friday. Now that trade relations with the US are deteriorating by the day and car sales are approaching this year, industry has been standing for the first time since the 1990s.

A slowdown in China – where car manufacturers have invested billions of dollars over the last 20 years to make factories grow – is causing the sector to grow with difficulty around the world. A trade war with the US has already prompted BMW AG and Daimler AG to warn against lower profits, while Chinese consumers who stayed away from showrooms forced Jaguar Land Rover to close a factory temporarily.

The economic stalemate between the US and China escalated last month when President Donald Trump hit a 10 percent tax on $ 200 billion Chinese imports, and said the levy will rise to 25 percent by 2019. China said it would reciprocate with charges worth $ 60 billion of American goods. While retailers pass on their duties to consumers and sell out Chinese markets, the lolly-scoffed saliva dog has had concerns about shoppers' spending.

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Reduce prices

Purchases of passenger cars by dealers fell by 12 percent in September to 2.06 million units, according to the China Association of Automobile Manufacturers. This means that the market is only 0.6 percent behind in the first nine months of the year. According to the association, the comparisons of the fourth quarter from 2017 onwards are a challenge. Nevertheless, CAAM maintained its prediction that the market will grow for the full year.

The slump is arguably the largest automaker ever in China, "the world's largest car market," said Steve Man, a senior analyst at Bloomberg Intelligence in Hong Kong. Weaker brands may be disproportionately affected, and such companies will have to lower prices to accelerate sales, Man said. Some car manufacturers may also be forced to make factories inactive to reduce inventory and reduce costs, he said.

The slowdown of growth is just as global brands are taking a bigger push to China, aided by the government to open up the economy. BMW unveiled a $ 4.1 billion deal Thursday to secure control over its Chinese joint venture and became the first car manufacturer to benefit from China's policy of giving foreign companies a majority stake in their local partnerships.

The German manufacturer of luxury cars is also among the Western brands that continue to increase production capacity in China and expand local production of models, including electric cars. Tesla Inc. continues to plan production in China to secure a larger share of the world's largest electric vehicle market.

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General Motors reported a 15 percent drop in Chinese deliveries for the three months ended September 30, the first quarterly report since the tensions with the United States increased in July. Volkswagen AG and Honda Motor Co. also reported declining deliveries.

The demand was also hurt by the gradual abolition of a discount on the purchase tax that was in force during the past year. Unexpected hurdles such as a rise in house prices also weigh on demand, Xu Haidong, CAAM assistant secretary general, told reporters in Beijing.

Car dealers in China now urge the government to take new measures to stimulate demand, including changes in the way VAT is charged on used cars. CAAM currently has no plans to encourage policymakers to stimulate demand, Xu said.