SHANGHAI - Car sales in China rose 1.6 percent in July from June to snap a three-month decline, official data showed on Thursday, but analysts warned against premature celebration amid the lingering impact of brakes on credit.
July sales edged up to 169,953 sedans, said a spokesman for the official China Association of Automobile Manufacturers, which puts out monthly sales data watched closely by the industry.
Sales were up 3.71 percent on the same month last year. State media had speculated July sales would show a slide from the year-earlier period for the first time.
"The trend is still pointing downwards for the next couple of months," said Christopher Lee, analyst at S&P Asian Equity Research. "There may be some recovery towards the end of the year, but it's still too early to see a sales pick-up."
Analysts say car sales this year may grow just 10 percent to 20 percent compared with 2003, when sales almost doubled to about 2 million.
Automakers such as Volkswagen AG and General Motors have cut prices in recent months, trying to kickstart sales, and analysts expect more discounting to come.
Volkswagen has chopped prices by as much as 11.7 percent, following reductions of up to 11 percent by GM.
Volkswagen's two main Chinese ventures have said this month that July sales jumped 53 percent from June as the price cuts helped reinvigorate buyers sidelined by credit curbs.
Still, margins are being squeezed.
GLUT DOWN THE ROAD
Auto industry executives remain upbeat for the long term.
Multinationals such as GM, Volkswagen and Toyota Motor Co. plan to spend $13 billion to triple capacity to 6 million cars by the end of the decade.
But that has stoked fears of an imminent margin-sapping glut.
Hong Kong-listed auto stocks have borne the brunt of investor fears over the slowdown.
Brilliance China Automotive Holdings Ltd., BMW AG's Chinese partner, has seen its shares slide 62 percent since the start of the year.
On Thursday, Brilliance closed up 1.27 percent, while Denway Motors Ltd., which makes cars with Japan's Honda Motor Co., ended 0.93 percent stronger. Both outperformed the Hang Seng Index's 0.57 percent rise.
"What is crucial will be sales in August and September, two traditionally busy months," said Zhang Xin at Guotai Junan Securities. "If there is no obvious spike then, you can be sure of a new round of (price) cuts in October."
Sales have also taken a battering from the drying up of auto loans, which at the end of last year accounted for some 20 percent of purchases.
"The key is the credit tightening," said S&P's Lee, pointing out that a soaring bad loan ratio had made banks wary about offering new credit.
"Overall, you're still going to see very cautious sentiment from banks, and that's going to restrict credit to buyers," said Lee, who expects 2004 sales to rise by just 10 percent.