CHONGQING, China—A surprise sales slump is hitting what had been
a fast-growing part of the world's biggest car market. That could
be bad news for mass-market global brands like Volkswagen AG and
Ford Motor Co. and luxury names such as Mercedes-Benz and BMW AG
alike.
The global auto industry has, in recent years, been betting on
China's west, where they see potential for faster growth than in
the more affluent—and car-saturated—cities along the coast and in
the country's eastern and southern manufacturing belts.
Instead, the region has been hard hit by China's economic
slowdown, curbing auto sales and leaving residents like Chen Liang
pinching pennies. On Wednesday, at an auto show in the sprawling
western city of Chongqing, the 24-year-old junior manager for a
laptop maker inspected a Chevrolet Aveo sedan, which sells for just
under his budget of 100,000 yuan (US$16,120), once a 10,000 yuan
discount is factored in.
The cost of living in Chongqing is comparable to Shanghai, Mr.
Chen said. "But the salaries here are much lower," he said.
An analysis of new-car registration data by Chinese automotive
research firm Ways Consulting Co. shows first-quarter sales across
12 western provinces grew about 12% from a year earlier to 1.2
million vehicles. That trails a 15% rise over the same period for
the country as a whole, and represents a shift from a year ago,
when western provinces outgrew the rest of the country. New-car
registrations are considered a proxy for auto sales.
Luxury sales appear even worse. The Ways data show registrations
of new Mercedes-Benz vehicles in the western province of Sichuan
fell 6.9% in the first quarter to 3,944 cars, compared with a 50%
rise in the same period a year earlier. Registration for BMW cars
fell 9.1% in the first quarter to 5,450 cars from a 36%
year-over-year increase in the same period in 2014, according to
Ways.
A spokesman for Mercedes-Benz parent Daimler AG said the company
shipped 17% more Mercedes-Benz cars to Chinese consumers in the
first quarter compared with the year-earlier period. It doesn't
break out sales by region. BMW said it doesn't comment on
third-party numbers.
Discounting from auto makers contributes to the slowdown, say
observers. Fu Lichuan, a Chongqing economic policy official, says
that when prices are being cut, "people will hold off on their
purchase plans, anticipating bigger discounts ahead."
On Wednesday, the government-backed China Association of
Automobile Manufacturers industry group said new passenger car
sales grew only 1.2% in May from a year earlier to 1.6 million
vehicles—the weakest expansion since February 2013. The results
were based on vehicles shipped to dealers rather than sales to
consumers.
Volumes are still small in the west compared with more-developed
areas. Still, car ownership in inland provinces looks
"over-penetrated" as many less-affluent cities have seen car
ownership rise faster than the national average, said Robin Zhu, an
analyst an analyst at banker Sanford C. Bernstein. Car makers "will
find that the bulk of their demand still comes from the traditional
coastal and central regions," said Mr. Zhu.
Foreign auto executives have in recent years focused on China's
west as a growth market. In 2012, Volkswagen unveiled its "Go West"
strategy, a key part of its plan to spend €14 billion (US$15.8
billion) through 2016 to expand production in China. The effort
included expanding both production and sales in the west. "In
Western China in particular, the group is expecting a strong rise
in purchasing power over the coming years," said Jochem Heizmann,
chief executive of Volkswagen Group China, in 2013.
Two years ago, Ford China CEO John Lawler said company officials
"expect to see a lot of the growth pushing west." Ford has expanded
its dealer network from 540 in 2013 to more than 800. Nearly 40% of
its new dealerships built since 2011 are located in the western
region, said a Ford spokeswoman. She said figures for sales in the
west weren't available.
General Motors Co. President Dan Ammann told reporters in April
last year that the company would add 700 dealers in central and
western China to sell Chevrolet and Buick models by 2017. A GM
spokeswoman said its growth has outpaced the industry both
countrywide and in the west this year, though recent data weren't
available.
According to Autohome, a Chinese auto news website, Chengdu—the
capital of Sichuan province with a population of 14.2 million—has
about 380 car dealers, meaning there is one dealer for roughly
every 37,000 residents. By comparison, the more-developed northern
Chinese city of Tianjin, a city with a population of 14.7 million,
has about 51,000 residents per dealership, while China's financial
capital of Shanghai has about 42,000 people per dealership.
The combined gross domestic product in the 12 western provinces
grew 6.2% in the first quarter of this year from a year earlier,
lower than the 7% the country recorded, according to data provider
Wind Information. A recent study by research firm Nielsen showed
that consumer confidence was lower in the west than in other
regions.
Foreign auto companies have also pushed west for manufacturing,
though driven more by incentives and the potential for cheaper
labor than sales. Beijing has encouraged the moves as part of its
effort to bring development to the country's interior. Two years
ago the government gave preferential lending and tax treatment to
foreign auto investment in the west.
By the end of last year, Chengdu was home to 21 auto makers and
246 auto-parts companies, employing more than 80,000 people in the
local automotive industry, according to the local government. In
nearby Chongqing, Ford and its Chinese partner added a new $600
million car-manufacturing facility last year, making the
southwestern Chinese city the biggest production base for the
company outside of its home in Michigan.
Rose Yu in Shanghai and Colum Murphy in Chongqing contributed to
this article.
Access Investor Kit for Bayerische Motoren Werke AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0005190003
Access Investor Kit for Daimler AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007100000
Access Investor Kit for Volkswagen AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007664005
Access Investor Kit for Volkswagen AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=DE0007664039
Access Investor Kit for Daimler AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US2338251083
Access Investor Kit for Ford Motor Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US3453708600
Access Investor Kit for Volkswagen AG
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US9286623031
Subscribe to WSJ: http://online.wsj.com?mod=djnwires