F Ford Motor Company

SHANGHAI -- China's car market grew at its fastest pace in six months in June, driven by a tax break, though dealer-inventory data paints a gloomy picture.

Foreign and domestic auto makers shipped 1.78 million cars -- sedans, sport-utility-vehicles and minivans -- to dealers last month, 18% more than a year earlier, the China Association of Automobile Manufacturers said on Monday.

The increase reflected weak year-earlier results, a benefit that will continue for another two months, analysts said. Sales in the world's biggest auto market fell three months in a row last summer as a plunge in stock prices ate into household wealth. Sales rebounded in the fourth quarter last year after Beijing halved the purchase tax on small-engine vehicles to 5%.

In the first half of this year, car sales from manufacturers to dealers rose 9.2% from a year earlier to 11 million vehicles, the government-backed group said. Combined sales of passenger and commercial vehicles increased 8.1%, to 12.8 million units.

Sales grew despite continued signs of a slowing economy. Economists expect second-quarter economic growth to come in no better than the first quarter's 6.7% gain, which was the slowest pace since the global financial crisis.

And behind the headline sales figures are dealer inventories that tell a different story. An index measuring inventory levels rose to 60% from 51% in May, according to the China Automobile Dealers Association, a government-backed trade group comprising 20,000 dealers. A reading above 50% indicates inventories at high levels.

Higher inventories pushed dealers to offer bigger discounts -- 10.3% on average in June, compared with 10% in May, according to Ways Consulting Co., a Chinese consulting firm focused on the automotive industry.

Another looming concern is the expiration of the tax break at the end of the year. Analysts have cautioned that the tax break could be pulling demand forward, meaning growth could once again stall when it ends.

SUVs and crossovers continued to lead the market. In June, over 630,000 were sold in China, 41% more than a year earlier, while sales of sedans grew 8.9% to 925,000.

Among major auto makers, which report sales to consumers rather than deliveries to dealers, General Motors Co. sold about 273,500 vehicles in June, up 11% from a year earlier; it cited strong demand for its SUVs and the luxury Cadillac brand. Ford Motor Co. sales rose 3%, to 85,100 vehicles. Nissan Motor Co.'s sales grew 17%, to 109,100 vehicles.

Toyota Motor Corp., however, reported its first monthly decline since December. Sales fell 3.5% to 97,100 cars because of declining sales of its best-selling Corolla sedans.

Backed by generous government subsidies, about 126,000 plug-in vehicles -- hybrid and pure electric -- were sold in the first five months of 2016, 134% more than a year earlier, said the auto-manufacturers' group.

Market researcher Nielsen Holdings PLC said its latest survey shows stronger consumer interest in alternative-energy cars than a year earlier, though nearly 50% of respondents said government subsidies still matter in the buying decision.

--Rose Yu

(END) Dow Jones Newswires

July 12, 2016 02:50 ET (06:50 GMT)

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