China’s auto market is witnessing a sharp decline that may last for a long time

China’s auto sales rose for the first time in a year, but the world’s largest market remains stuck in a deep recession showing little sign of ending anytime soon, as the country’s massive economy is slowing down.

Geely, one of China’s largest automakers, released late Monday a report showing net profit fell 40 percent in the first half of the year. In June alone, sales of the company’s cars fell 29%. The company said the reason for the decline was mostly lower sales in China than expected. Geely sales fell 33% in their home market.

Global brands also suffer. Ford said last week it sold nearly 22 percent less cars in China in the second quarter compared to the same period last year. General Motors also reported a 12% decline in car sales in China during the same quarter.

Many major Chinese automakers have seen severe declines. Haima Automobile recorded a 70% drop in sales for the first five months. Chongqing Changan Automobile, the Chinese partner of Ford, recorded a 33% drop in the same period.

Suppliers also feel the effects of the Chinese market’s recession. BASF (BASFY), the German based chemical company, lowered its profit forecast for this year on Monday, blaming weak vehicle sales and trade tension between the United States and China. ” Globally, [auto] production declined by around 6% in the first half of 2019. In China, the world’s largest automotive market, the decrease was more than twice as high, at around 13%,”.

China’s auto market shrank for the first time in more than two decades in 2018, worsening the slowdown this year caused by weak economic growth, the trade war with the United States and tough new emission standards that were adopted on the 1st of July. The reluctance of consumers to make large purchases in an uncertain environment has also become part of the problem.

On July 1, China set a deadline for provinces and highly polluted region to implement new emissions standards. So far, at least 18 provinces and cities have conformed, including Beijing and Shanghai.

After falling for 11 months and by 13% for the first five months of 2019 – car sales rose in June. The first- cumulative figures for the first 6 months of the year are due for release on Wednesday. However, the increase in June sales is largely due to a large discount to liquidate inventories of cars with old emission standards.

Finally, analysts expect car sales in China to fall 5% this year, worse than last year’s 3% drop. Geely, the biggest shareholder of Germany’s Daimler (DDAIF), fell 3.8% on Tuesday to $11.70, its lowest level in six months. Analysts cut Geely’s target price by 38% to just $5.


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