Not buying it

For German automakers, the Chinese gold rush is ending

China, Beijing: Volkswagen car billboard
A sedan is little comfort for a child who wanted an SUV. Source: picture alliance

The boom times are over in China’s auto market and that’s particularly bad for German manufacturers who have been riding the wave for years.

Take VW. Of the 11 million cars it sells worldwide each year, some 40 percent go to Chinese customers. It’s the auto giant’s most important market and sales of VW brand cars there fell 2.4 percent in July to 224,000. That trend continued in August, said company sources ahead of the release of global sales figures Wednesday.

Daimler’s sales growth in China weakened to 5.5 percent in August from 13.7 percent in June, and the maker of Mercedes-Benz cars and trucks was forced to issue a profit warning at the end of June, citing the trade dispute between China and the US. China has slapped a 40 percent tariff on cars imported from the US and that affects Daimler as well as BMW because they supply the Chinese market with SUVs made in their US plants.

The party’s over

“Winter is coming in the Chinese auto market,” said Cui Dongshu, general secretary of the China Passenger Car Association (PCA). The group warned that a drop in SUV sales, where German brands are heavily represented, in particular could accelerate by the end of the year.

The trade row has made car buyers in China more cautious in recent months and sales of SUVs are particularly affected — they were down 8.5 percent in August. Economic uncertainty coupled with rising rents could lead buyers to look at smaller cars – or none at all. In July, rents in 50 major Chinese cities were up 17 percent year-on-year on average.

G S19 auto market China (002)

Overall unit car sales in the Chinese market fell 7.4 percent to 1.76 million in August, according to figures released Monday, making it the third straight month of declines with the amount increasing from June and July.

The trade war is also confusing buyers because, at the start of July, the Chinese government lowered tariffs on imported vehicles to 15 percent from 25 percent. But just a few days later it slapped a 40 percent tariff on cars imported from the US.

Show its gray hair

The slowdown isn’t just explained by the trade dispute. After years of breakneck expansion, China is evolving from an emerging market to a fully-fledged industrial economy.

“The seven fat years in the auto industry are over for now. The sales decline in China is just one additional indicator that automakers could now be facing seven lean years,” said Stefan Bratzel, head of the Center of Automotive Management at the University of Bergisch Gladbach. He said Chinese local players were getting ever stronger in terms of quality as well as innovations.

“What has happened in China in the last 15 years was a one-off,” said Mr. Bratzel. The growth rates were unsustainable and German automakers are particularly exposed to the slowdown because of their dominance. “Everything that happens in this market affects entire companies — positively as well as negatively.”

The Chinese government helped boost auto sales last year with tax incentives. “So this year’s sales figures aren’t too deep, it’s the 2017 figures that were too high,” said John Zeng, head of China research at market research firm LMC Automotive.

Stefan Menzel covers the car industry for Handelsblatt. Sha Hua is a correspondent in Beijing for Handelsblatt. Franz Hubik covers renewable energy for Handelsblatt in Düsseldorf. To contact the authors: hubik@handelsblatt.comhua@handelsblatt.commenzel@handelsblatt.com

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