US, European Car Makers Reel From Weak China Sales

American and European car firms that bet big on China's huge motor vehicle market are reeling from an 18 percent plunge in passenger car sales in January, and things are about to get a lot worse.

Sales in China's once lucrative motor vehicle market began plummeting in July 2018 and is now into its seventh month. Annual car sales fell precipitously in 2018 for the first time in 20 years, said the China Association of Automobile Manufacturers (CAAM).

The prolonged slump is hammering General Motors Company and the Volkswagen Group (including Audi) in particular since both depend on huge sales in China to rev-up their operating results. Ford has also fallen victim to the weak China car market, its sales crashing by more than a third in 2018.

Last month, GM reported an unnerving 10 percent plunge in its China sales for 2018 compared to 2017. GM plans to reverse the unwanted trend of weakening sales this year by selling more than 20 new models in China. It will also sell more electric vehicles to compete against Tesla.

Volkswagen’s non-growth so far this year stands in stark contrast to its performance in 2018 when it reported record sales in China. Sales of VW motor vehicles fell 3 percent in January and the outlook for February remains grim as China’s economy continues to sour and Chinese consumers keep holding on to their cash.

In a statement announcing the plunge in January car sales, CAAM said “there was no sign of improvement” in the sector. CAAM said only 2.367 million vehicles were sold in January.

“We estimate that February wholesales will also drop sharply,” said Xu Haidong, CAAM assistant secretary-general. He said “the reason for the sales drop is still the slowing overall economy and consumption decline in small- and medium-sized cities.”

Xu expected sales to improve somewhat in the second half of the year after measures were announced last month to boost consumption in the motor vehicle sector. An action plan in January by the National Development and Reform Commission (NDRC) will expand existing subsidies for rural residents looking to buy motor vehicles.

The bright spot in this gloom is the strong sales of new energy vehicles, whose sales jumped 140 percent year-on-year in January to 95,700 vehicles sold.