BEIJING -- China's passenger car sales remained in the doldrums for the fifth straight month, falling by more than 2 percent in September compared to the same month in 2003. Analysts blamed the government's credit-tightening measures, while automakers stuck to plans to boost investment in China by billions of dollars.
Official figures are not out yet, but numerous media reports quoting sources such as the National Car Market Information Panel say September sales fell slightly to 187,000 units, compared to the same month last year.
Sales began to slow in May, after the government clamped down on lending in certain sectors to slow China's red-hot economic growth. The move also had a paralyzing affect on consumer psyche, says Ashvin Chotai, director of Asian automotive industry research for Global Insight in London.
"Despite all the changes, China is still a command economy," he says. "People worry about what the government says. That is keeping people away from the showroom."
Ongoing price wars add to the reluctance to buy, Chotai adds.
China's car sales rose by more 65 percent in 2003 and as recently as April were still up 38 percent annually, according to Global Insight.
In June, GM announced plans to invest $3.0 billion in China over the next three years. Ford announced in October that is would boost investment by $1 billion to expand capacity at an existing venture and build a new plant.
Says GM China spokesperson Daphne Zheng: "We remain confident in the long-term prospect of the China market and remain committed to our investment plan. We will not be distracted by the short term fluctuations to miss out on the long-term opportunities."
Short-term production plans are changing, however. Shanghai GM stopped production of its Buick Regal sedan for the month of October.
The slowdown in China also contributed to GM's decision to trim its profit forecast for 2004 to $6.00 to $6.50 a share from $7.00. Chief Financial Officer John Devine said that earnings in China wouldn't rise for up to a year. GM's third quarter profits in China fell to $80 million from $142 million a year earlier.
Ford, a relative latecomer to the China market, is also sticking to its guns. "We have no change in our investment strategy," says Kenneth Hsu, vice president of public relations for Ford Motor (China). "But we have built in flexibility at our plant. We always took into consideration how well can we accommodate to the volatility of the market."
Chotai says the more flexible automakers can be, the better. "You don't want to limit your upside by being over cautious," he says. But "these are conditions where it is absolutely very important to keep your investment strategies quite flexible."
Global Insight forecasts monthly negative annual growth until potentially May of 2005.
You may e-mail Alysha Webb at