China Sales Decline Puts Automakers In A Tight Spot
Zacks Investment Research | Jan 14, 2019 08:48PM ET
Passenger car sales in China declined in 2018 for the first time in nearly three decades. Per China’s Association of Automobile Association (CAAM), vehicle sales in China dropped 13% in December 2018, marking the sixth consecutive month of decline. In 2018, total automobile sales declined 2.8% to 28.1 million units.
The slump in China doused hopes of robust growth in auto sales in the months ahead. Foreign automakers were banking heavily on the world’s largest car market, China but the recent collapse played spoilsport. Importantly, this has happened at a time when global automakers are spending heavily on their transition to electric and autonomous vehicles.
Per Bloomberg, adding to automakers’ woes, economists predict economic growth in China to slow down to 6.2% in 2019 from 6.6% in 2018. The unsettled trade spat between the United States and China is likely to affect consumer confidence in 2019. Goldman Sachs Group Inc (NYSE:GS). does not predict bright prospect for the auto sector in China in 2019 and it expects sales volume to drop 7% in the year. China-based automaker Geely Automobile Holdings Ltd. (OTC:GELYY) forecasts flat sales for 2019.
Likely Losers
Along with consumers’ waning appetite for passenger cars in China, lack of demand in other parts of the world such as the United States, the U.K. and Germany, is making the journey tougher for global automakers. As escalating vehicle prices, uncertainty related to Britain’s pending exit from the European Union and the launch of services such as car sharing are keeping a lid on auto demand, automakers are reorienting business models.
The second largest U.S. automaker Ford Motor Company (NYSE:F) and Britain’s Jaguar Land Rover recently announced heavy job cuts in Europe. Stricter emission standards, a sharp decline in the demand for diesel vehicles and a slump in global economies led by China might have prompted these automakers to make such a move. (Read more: Zacks Investment Research
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