Auto Sales Slow in China, But Still Growing Long-Term

(MoneyWatch)  China is experiencing what passes for a downturn in its booming domestic auto market, which is to say a slowdown in the rate of growth.

"The China market right now is slowing," said Tim Dunne, director of Asia-Pacific Market Intelligence at J.D. Power and Associates. "It's not a downturn like here, just a slowing of growth," he said.

In August, auto sales in China fell below the year-ago month for the first time in two years, according to a Reuters report. August sales were down about 6 percent in China. Through eight months of 2008, year-to-date sales were still up by about 13 percent, the report said.

Chinese auto sales are down because gas prices in China are up, and stock markets in China are down, Dunne said. "A lot of people (in China) were financing car purchases through profits from the stock market," Dunne said.

The Chinese government, which effectively controls gas prices, hiked the price per gallon in June by about 17 percent, to the equivalent of $3.35, he said. Inflation is also up in China, mostly because of energy prices, he said.

Auto sales in China have grown exponentially since mainland China joined the World Trade Organization in 2001, according to J.D. Power and Associates.

Dunne said that in the last five years, China has grown from the seventh-largest to the second-largest single-nation auto market, behind the United States. Auto sales in China grew at an annual rate of well over 20 percent each year, in 2005, 2006 and 2007, according to J.D. Power and Associates.

Chinese consumers have a taste for import brands, even though they are on average more expensive than domestic brands. "Almost all the Japanese brands are up this year, and up significantly," Dunne said.

Sales are also growing for luxury import brands in China. Buick sells more cars in China than in the United States, including a unique version of the Buick Park Avenue for the Chinese market that is often chauffeur-driven.

The growth rate in auto sales is expected to increase again in China in the next few years, but probably won't regain the extremely high rate seen in 2005 through 2007, according a J.D. Power forecast.