Auto sales may contract for first time since 2008

China's auto market is entering a "new normal" with slow single-digit growth expected, while annual sales volume is likely to record its first contraction since the 2008 global recession, according to the latest study of global advisory firm AlixPartners.

This year is considered the most challenging for automakers in China given that sales between January and July only recorded a year-on-year growth of 3.4 percent.

Although certain segments such as SUVs continue high speed growth, the light commercial vehicle (LCV) market is suffering from the impact of China's economic downturn. Some 11.85 million LCVs were sold in the first half of this year, down 14 percent year-on-year, a record low.

Most Japanese, European and US original equipment manufacturers (OEM) are utilizing more than 90 percent of plant capacities in China, while the utilization among Chinese OEMs is below 60 percent. Typically, utilization above 85 percent is considered the minimum for profitable operation.

"Unless a strong turnaround is logged in the second half, 2015 is likely to be a downbeat year for automakers and dealers since the market recovered from the 2008 global recession. Inventories are increasing, sales slowing and OEMs are starting to reconsider their production strategy – all signs of increasing competition and a much tougher environment," said Lian Hoon Lim, managing director of AlixPartners.

Sales of total dealership are expected to fall from 49 percent last year to 38 percent in 2018. A significant proportion of cars are likely to move away from original dealers for servicing after manufacturers' warranties expire.

Auto sales will grow 4.1 percent annually through 2018 and further slow to 2.9 percent by 2023, analysts at AlixPartners predict. It will be a significant lower growth rate compared to compound average growth of 19.3 percent over the past decade.

AlixPartners also predicts that sales in China will reach 33.4 million vehicles by 2023, accounting for 30 percent of global auto sales.

shijing@chinadaily.com.cn