China auto sales slump hits industry fortunes

General Motors Co's US $5 billion initiative to create cars for China and other emerging markets comes just as automakers face a collapse in the booming Chinese demand they were counting on to power their growth.

June sales in the biggest car market by number of vehicles sold shrank by 3.4% from a year earlier as an economic slowdown deepened and smog-choked cities tried to curb growth in car ownership.

Sales growth has cooled from 2009's explosive peak of 455 but the latest figures surprised analysts who were forecasting a healthy 7 to 8% for this year.

Those still buying cars are benefiting: GM and Volkswagen AG, China's top-selling brands, have cut prices by up to 53,900 yuan (US $8,700). Analysts say dealers are struggling financially and automakers also might have to share more profit with them.

"The days when you could sell whatever car you made are not there anymore," said industry analyst Lin Huaibin of IHS Automotive.

This wrenching shift is especially significant because of China's outsize role in the global ambitions of US, European and Asian automakers.

Despite the slowdown, they are pushing ahead with multibillion-dollar plans to expand production and create models to suit Chinese tastes, adding to competition in a crowded market.

Yesterday, GM said it will work with its main Chinese partner, Shanghai Automotive Industries Corp, to develop vehicles to be sold in China, Brazil, India and Mexico.

GM said it aims for annual sales of 2 million vehicles beginning in 2019.

In April, Ford Motor Co and a local partner announced they would spend US $1.1 billion on a factory in China's northeast.

Ford said that would add 200,000 vehicles to its annual China production capacity.

China passed the United States in 2009 as the biggest market by number of vehicles sold as incomes rose and B4 promoted the industry as an engine of economic development.

Double-digit Chinese sales growth helped to buoy global automakers after the 2008 financial crisis crushed demand everywhere else.

Automakers added bigger backseats and other features for Chinese buyers, changing the look and feel of cars sold worldwide. Nissan Motor Co made China a pillar of its global turnaround strategy.

Companies were preparing for slower growth, but the squeeze hit faster than many expected.

"The impact to earnings in 2015 could be substantial," said Bernstein Research in a report. "We still expect China to sell a lot more cars in future years, but returns in the market may never be the same again."