SHANGHAI -- Sales of passenger cars in China were too hot not to cool down, but few expected it to happen so fast. Now automakers have begun cutting production plans.
Last month, new-car sales rose only 2.2 percent to 164,852 units compared with June 2003. That's a striking deceleration given the way the market has been running.
"Everybody expected a slowdown, it's just that it's happened very suddenly," says Ashvin Chotai, director of Asian Automotive Industry Research, Global Insight in London.
New-car sales in China have been on a tear since early 2002. That year they rose 62 percent compared with 2001 to 1.26 million units. In 2003, sales surged another 70 percent to more than 2 million units.
Sales continued to boom through the early months of 2004, but year-on-year growth slipped to 10 percent in May and fell more last month.
The car market grew 29.4 percent in the first half to 1.12 million units, according to the China Passenger Car Market Association, an organization of automakers.
China's two largest carmakers, Shanghai General Motors and Shanghai Volkswagen are limiting production this month. Shanghai GM is closed from Thursday, July 15 to July 25. Suppliers were told it is to save power in the midst of a shortage. A GM China spokesperson says the shutdown is for routine maintenance. Meanwhile, Shanghai VW is working some half days to save power. Shanghai faced similar power shortages last summer, and neither company stopped production in the face of roaring demand.
General Motors does not release its production targets. But Global Insight in April forecast Shanghai GM's 2004 output at 290,000 units. Now, it is predicting 248,000 units.
In January, Shanghai Volkswagen said it would produce 460,000 units this year, but it has cut that plan to 430,000. Company sources say it could be trimmed further.
GM sales remain strong. Shanghai GM sold 24,043 units in June, up 65 percent from the year-ago month.
Shanghai Volkswagen sold 20,805 cars in June, down 36.7 percent. At FAW-VW, Volkswagen's other China venture, June sales fell 39.1 percent to 12,786 units compared with the year-ago month.
The slowdown was caused by a combination of factors, says Yale Zhang, a Shanghai-based analyst with market forecaster CSM Asia.
Rampant price cutting is causing buyers to delay purchases, Zhang says.