Auto sales encounter rough patch

Manufacturers expect just 3 percent rise in deliveries amid economic growth concerns

China has cut its forecast for vehicle sales in the world's largest market.

The country expects deliveries to expand at the slowest pace in four years amid turmoil in the stock market that threatens to dent consumer sentiment.

Total vehicle deliveries including trucks and buses will probably rise by 3 percent this year, down from the 7 percent predicted in January, the China Association of Automobile Manufacturers said on Friday.

That would be the smallest increase since 2011, when the government unwound stimulus measures unleashed in the wake of the global financial crisis in 2008.

Global automakers, such as Volkswagen AG and General Motors Co, said sales are now growing slower in China, where they have spent billions to build factories, than in their home markets.

With the recent stock market crash wiping out $3.9 trillion of value and economic growth continuing to stagnate, concerns are rising that demand will further slow even as more auto factories are completed.

"I don't think you can imagine very strong growth in the market," said Anna-Marie Baisden, London-based head of auto analysis at BMI Research.

"The second half will be worse, people would have lost money from the markets, and the whole economic situation hasn't been helping."

The revised forecast comes as Volkswagen, the biggest foreign carmaker by sales in China, became the latest company to extend financial assistance to its dealers.

The 1 billion yuan ($161 million) in funding will be paid to distributors selling VW brand cars made by the company's joint venture with FAW Group Corp, according to two people familiar with the plan. They asked not to be named because the discussions were private.

China will see more manufacturing capacity added even with sales slowing.

Hyundai Motor Co is building two more plants in China by next year, while Renault SA has a factory set to open in the first half of 2016. Fiat SpA is set to start making Jeeps in China later this year.

Earlier this week, Cui Dongshu, secretary-general of the China Passenger Car Association, described the stock market rout that turned a world-beating boom into a bust as a "meat grinder" that destroyed wealth that might otherwise be spent on new cars.

Dong Yang, secretary-general of the China Automobile Manufacturers Association, said: "China's auto market would be much more stable if there was no stock market given that it damps demand no matter whether stock prices go up or down. If people have extra money, don't invest in the stock market. It would be nicer if people use it to buy cars."

Price cuts by foreign and local brands in the past months have done little to spur demand.

A survey by MNI Indicators showed the proportion of consumers who planned to buy a car shrank last month, while inventories were at levels that indicated low market demand for nine consecutive months.