China's Vehicle Demand Forecast to Fall for Second Straight Year

(Bloomberg) -- China’s vehicle demand is expected to decline for the second straight year, extending a historic slump as customers delay purchases amid trade tensions with the U.S., industry watchers said.

Passenger-car sales will probably drop 5% in 2019, researcher LMC Automotive estimated, after the first annual decline in more than two decades last year. Guangzhou Automobile Group Co., which builds sport-utility vehicles, sedans and minivans, forecast overall vehicle deliveries will fall by the same margin. The China Association of Automobile Manufacturers predicted “negative growth," with no sign of a rebound.

“Car-purchasing power of the lower-end consumers has been falling,” said Xu Haidong, an official at the industry body. “We will see the Chinese auto market go like the letter L within the next two to three years."

China’s auto sales are likely to remain sluggish in coming months as the outcome of trade talks with the U.S. remain uncertain, hurting consumer sentiment, according to Bloomberg Intelligence. Sales fell in the first five months as dealers grappled with swollen inventories in provinces that implemented stricter emissions standards.

Meanwhile, the rising popularity and availability of car-sharing and ride-hailing services is reducing the need for individuals to buy vehicles. Guangzhou Auto on Wednesday rolled out its car-hailing service, jointly developed with companies including Tencent Holdings Ltd. and Didi Chuxing. Guangzhou Auto and Didi have also signed a pact to expand their partnership in ride-hailing operations.

Demand for electric vehicles, though, has continued to rise, although at a lower clip. Total sales climbed 42% in the first five months to 464,000 units, CAAM said, compared with a 62% gain last year.

“The electric car market is surely still growing," said Freeman Shen, founder of EV startup WM Motor Technology Co.

Shen forecast demand for passenger vehicles will continue to increase amid fluctuations until it reaches an annual volume of about 36 million to 38 million vehicles. About 28 million vehicles were sold in China last year, of which 24 million were passenger cars.

©2019 Bloomberg L.P.