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Low Consumer Confidence Hitting Auto Sales in China
Feb 04, 2009

In 2008, car sales in China registered single digit growth rate for the first time in 10 years due to weak consumer confidence induced by global financial turmoil.

According to China Association of Automobile Manufacturers, for the first time since 1998, growth in auto sales in China, the second largest automobile market in the world, slipped to a single digit rate in 2008, as reported by Reuters.

In 2008, automobile sales in China grew at a rate that was less than half of that recorded in 2007. Sales rose to 9.4 Million Units with a growth rate of around 8% in 2008 against 21.84% in 2007. Passenger car sales fell 8% to 584,600 Units in December 2008. In the same month, overall automobile sales decreased by 12% and reached 741,600 Units. Also, in 2008, the production of cars in China went up to 9.34 Million Units by increasing 5.21% from the previous year, recording the slowest growth rate in a decade.

The economic downturn shattered down the consumer confidence, thereby reducing the demand for new vehicles. Consequently, 2008 turned out to be one of the worst years for the Chinese auto industry. Increasing job insecurity also restrained the demand.

In recent months, car sales have declined in China. This led the government to cut road tolls and assess tax cuts in order to boost the demand. This slowdown is also adversely affecting the foreign automakers like Volkswagen AG and General Motors Corp., who are relying on emerging markets to make up for the reducing demand in the US and European markets.

Though tax incentives and other measures will prevent the automobile market from contracting, but the overall scenario for 2009 remains gloomy. It is worth noting that some auto manufacturers like the Japanese have successfully restrained the blow by launching new models.

Meanwhile, the Chinese government is expected to announce the auto stimulus package in Q1 2009 to induce an annual growth rate of about 10% in its auto sector amid the economic recession.

According to a Research Analyst at RNCOS, “Auto manufacturers have reduced the prices of vehicles to fight the increasing competition and slumping demand. But these initiatives don’t look sufficient to lure the customers.”

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