GM General Motors Company

By Trefor Moss 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (January 15, 2019).

Chinese passenger-vehicle sales fell last year for the first time since 1990 as economic uncertainty weighed on consumers, producing a wreck for Ford Motor Co., General Motors Co. and other manufacturers.

The slump, shown in official data Monday, ended the growth that many foreign and domestic auto makers had expected to last for years to come. Facing saturation elsewhere, global auto makers have banked on China, the world's largest car market.

But a new car is the first thing scrubbed from the shopping list in uncertain times, said Benjamin Lo, head of China autos research at Nomura Securities Co. Ltd. China's economy is in a deeper-than-expected downturn. With the outlook still shaky, he added, "there's no evidence right now to suggest demand is coming back."

The expiration of a sales-tax break at the end of 2017 compounded car makers' troubles.

The collapse in sales looks particularly challenging for foreign makers. GM and Volkswagen AG sell more vehicles in China than anywhere else, while Ford, Peugeot SA and Hyundai Motor Co. face acute overcapacity problems.

Chinese auto sales last year reached 28.08 million, down 2.8% from 2017, the government-backed China Association of Automobile Manufacturers said Monday. Passenger-car sales fell to 23.71 million, a 4.1% decline, while commercial-vehicle sales rose to 4.37 million, a 5.1% increase.

Electric-car sales surged ahead, increasing 62% to 1.26 million. The government-enforced shift to electrics may mean that 2017 will go down as the peak for gasoline-powered cars in China: Over 28 million were sold that year, a total that slipped below 27 million in 2018 and is likely to be flat or lower this year.

Electric-car sales, accounting for 4% of the 2018 total, seem on pace to hit the government's 2025 target of 20%, especially with regulations forcing all auto makers to start producing EVs this year. Tesla Inc. broke ground on a plant in Shanghai last week and aims to start production by the end of the year, while GM, Volkswagen and others are readying a barrage of EV launches.

For the first half of 2018, auto sales seemed likely to continue their long growth streak: Sales through June were up 6%. But Jul-December sales were down 11% as the yuan weakened, Chinese stocks shed value and consumers fretted over China's deepening trade dispute with the U.S. Another brake on sales came from a crackdown on unruly online lending -- including peer-to-peer -- which funded a 10th of vehicle purchases in China's smaller cities.

Worse may lie ahead: Nomura forecasts a 5% sales decline this year, before the market returns to slow growth in 2020. The auto manufacturers' association -- which had forecast 3% growth last year -- anticipates basically flat sales in 2019.

Growth will "be L-shaped in the coming three years," said Xu Haidong, the association's assistant secretary-general. The economic downturn and financing squeeze will continue to hurt spending this year, he said, especially in smaller cities -- denting sales of the lower-end sport-utility vehicles that powered growth in recent years.

In the small eastern manufacturing center of Danyang, Anji Auto Sales dealership sells cars from domestic producer Chang'an Automobile Co. Ltd. Business wasn't pretty in 2018, said sales director Wan Jun, and a further decline is likely this year: "The problem lies with a slowing economy, and clients do not have enough idle money to buy cars as a result."

A cut in the auto-sales tax from 2015 through 2017 postponed the slump by bringing demand forward, said Ernan Cui, China consumer analyst at Gavekal Dragonomics.

Beijing, slow to intervene, has begun to signal it might now that Chinese leaders have put a priority on stabilizing the economy. A senior official at the National Development and Reform Commission, which oversees the auto sector, said in an interview with state media last week that the government is considering ways to boost demand for cars.

Ford had a particularly disastrous year in China, with sales falling 37% to 752,243 -- the lowest since 2012 -- following a 6% decline in 2017. Its December sales were down 59%. "We start 2019 with a new mind-set," Ford's China head Chen Anning said in a statement, promising 10 new products this year.

GM's China sales last year came to 3.65 million cars, down 10% -- including a 25% drop in the fourth quarter.

Foreign auto makers are scrambling to adjust to the tastes of a more selective Chinese consumer just as domestic rivals are becoming more adept. Indeed, the strongest Chinese brands increased their sales last year. Zhejiang Geely Holding Group Co.'s sales were up 20%, breaking 1.5 million, despite a fourth-quarter stall. After 46 consecutive months of growth, sales of the company's main Geely brand were down 10% in both October and November and 45% in December, causing the Hangzhou-based company to miss a yearly sales target of 1.58 million.

Volkswagen said that sales of its VW brand -- long the best seller in China -- declined 2% to 3.11 million in 2018. Despite the troubling outlook, the company will double down on China by investing more locally and tailoring new models to Chinese tastes, Chief Executive Herbert Diess told reporters in Beijing last week: "The future of Volkswagen will be decided in the Chinese market."

The premium segment was immune to the chill. Sales of Cadillac -- the only GM brand to grow in China last year -- were up 17%, while sales of Mercedes-Benz cars made by Daimler AG and VW-owned Audi AG both increased 11%.

Shan Li and Lin Zhu in Beijing contributed to this article.

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

January 15, 2019 02:47 ET (07:47 GMT)

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