Auto industry cautious about China’s sluggish market at start of decade

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BEIJING/SHANGHAI (Reuters) – China’s auto market is likely to shrink for the third year in a row in 2020, the country’s top auto body is expected to say on Monday, but industry watchers are cautiously hoping a sales recovery in lower-tier cities ease the pace of decline.

FILE PHOTO: Workers work on an assembly line manufacturing Audi Q3 cars at the FAW-Volkswagen Tianjin plant in Tianjin, China December 5, 2019. Picture taken December 5, 2019. REUTERS/Stringer

The drop in car sales is expected to be milder than last year, when sales were pressured due to new emission standards in a broader economy that was both shrinking and under attack amid a trade war with the United States.

The China Association of Automobile Manufacturers (CAAM) last month forecast annual car sales in 2020 would dip 2% after an estimated 8% slump in 2019.

In 2018, sales declined 2.8%, halting a growth march that started in the 1990s.

“The negative effect of cutting purchase tax in 2015-2017 has disappeared, and car sales in lower-tier cities are expected to recover,” said Alan Kang, a senior analyst at LMC Automotive.

“The easing of trade tensions between China and the United States has also helped restore consumer confidence,” said Kang, who expects car sales in China to grow 0.05% this year.

But global automakers have been cautious with their predictions after cutting back production, shutting factories and firing staff last year.

Top executives in companies such as Geely and Ford Motor Co (F.N) partner Chongqing Changan Automobile Co Ltd (000625.SZ) have said they expect fiercer competition to weed out weaker players.

On Monday, Ford said China auto sales in 2019 slumped by more than a quarter, its third straight year of decline as demand for its mass-market Ford brand and sports utility vehicles continue to be anaemic.

This fall, however, was slower than the 37% drop in sales Ford weathered in 2018 and the company said it saw its market share in the high-to-premium segment stabilize last year.

But it remained cautious about 2020, echoing bearish comments about sales in China from General Motors Co (GM.N).

“We expect the market downturn to continue in 2020, and anticipate ongoing headwinds in our China business,” Matt Tsien, president of GM China, said last week as the automaker reported a 15% drop in sales in 2019.

Volkswagen AG (VOWG_p.DE), whose sport-utility vehicles have helped it to report a smaller 1.1% year-on-year fall in sales in the first 11 months of last year, has said it expects China’s market to grow at a relatively low pace for the next five years.

The bright spots have been Japanese car makers Toyota Motor Corp (7203.T) and Honda Motor Co Ltd (7267.T) as well as U.S. electric vehicle maker Tesla Inc (TSLA.O), which started delivering China-made Model 3 sedans from its $2 billion Shanghai plant this month.

(GRAPHIC: China’s auto sales are set to fall for the second year running – here)

Reporting by Yilei Sun and Brenda Goh; Editing by Jacqueline Wong and Christopher Cushing