China’s Consumers Rattle Global Automakers as Sales Plunge

Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter

Welcome to the Big Club of Saturation & Decline.

For the month of December, light new-vehicle sales in China plunged 13%, compared to a year ago, to 2.23 million vehicles, the China Association of Automobile Manufacturers (CAAM) announced on Monday. Sales through June had risen 6%, but then came July, and now there have been six months in a row of year-over-year declines – with the last four months dousing any remaining enthusiasm about China’s consumers with double-digit declines:

  • July: -4.00%
  • August: -3.8%
  • September: -11.6%
  • October: -11.7%
  • November: -13.9%
  • December -13.0%

These declines pushed light new-vehicle sales down 4.1% for the year, to 23.7 million. This phenomenon of declining auto sales is new to China’s managed and pump-primed growth-no-matter-what economy. Data going back to 1990 show relentless annual sales increases. Between 2005 and peak-year 2017, new vehicle sales multiplied by a factor of six:

By comparison, over the same period from 2005 to 2017, US auto sales inched up 1%, from 16.95 million vehicles in 2005 to 17.13 million in 2017, with a huge trough in the middle. The Chinese market is now 40% larger than the US market.

Even during the Financial Crisis, China’s auto market boomed enormously. By comparison with the US, for the years 2008, 2009, and 2010:

  • In the US, over the two-year period 2008-2009 combined, new-vehicle sales plunged 35%. In 2010, sales began to recover, but it still left sales down 28% for the three-year period.
  • In China, new-vehicles sales rose 7% in 2008, and then more than doubled over the two-year period 2009-2010, bringing the three-year sales increase to 118%.

An annual decline in new-vehicle sales of 4.1% was just unheard of in modern China. So we welcome China’s auto market to the big club of saturation and decline:

Global automakers were betting heavily on China by building large-scale auto manufacturing capacity with their required Chinese partners. Now these joint-venture investments are translating into the dreaded word: overcapacity. GM and Volkswagen sell more vehicles in China than in any other country, including the US, and most of the vehicles they sell in China are made in China.

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For US automakers in China:

  • GM’s sales dropped 10% to 3.65 million vehicles, including a 25% plunge in Q4. But its premium brand Cadillac saw sales jump by 17%.
  • Ford’s sales plunged 37% to 752,000 vehicles, including a December collapse of 59%.

Volkswagen Group was the largest automaker in China in 2018. Its luxury brands did well. Audi sales rose 11% and Porsche sales rose 12%. But VW sales fell 2.1% to 3.1 million vehicles. All brands combined, the group eked out a 0.5% gain for the year, to 4.21 million vehicles.

The largest Chinese automaker, Zhejiang Geely Holding Group, had a strong first nine months, but then sales also dropped: October -10%; November -10%; and December -45%.

As a sign of the times in China, the premium brands gained: Cadillac gained 17%, Mercedes-Benz 11%, Audi 11%, and BMW 7.7%.

Sales of battery electric vehicles and plug-in hybrids surged 62% to 1.255 million vehicles, reaching a record 5.3% of total vehicle sales. China has been piling incentives on electrified vehicles, trying to push this segment to reach 20% of total sales by 2025. In addition, all automakers are now required to produce and sell EVs in China.

The plunge in overall auto sales over the past six months says a thing or two about the state of China’s consumers. There is nothing in the data indicating that this was just a blip, as we might have inferred in July or August, or that the surge of demand is coming back.

Auto sales are a reflection of the consumer. And the double-digit plunge in auto sales over the past four months is not a propitious indication about China’s consumers going forward or China’s economic growth that increasingly depends on these consumers.

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