Stock market slide puts car sales in reverse

Automakers in China are finding themselves in a "lose-lose situation" after a world-beating stock market boom that diverted funds away from buying new models turned into a bust.

This has further dented demand in the world's largest car market as the country's economic growth slows.

Passenger-vehicle sales fell for the first time in more than two years as tumbling stock prices dented consumer sentiment.

Retail deliveries of cars, multipurpose vehicles and sport utility vehicles fell 3.2 percent in June from a year earlier to 1.43 million units, the China Passenger Car Association said on Wednesday on its website. Sales last fell in February 2013.

An increasing number of car buyers are canceling their purchases and losing their down payments after the stock market dip erased about $3.2 trillion in value, according to Cui Dongshu, secretary-general of the association.

"The plunging stock market is essentially a meat grinder, shredding money meant for buying cars," Cui said.

The rapid fall in the market, which saw the Shanghai Composite Index dive more than 30 percent since June 12, is dealing another blow to auto demand already slowing with the economy.

Dealers who reported softening demand as prospective buyers postponed their purchases during the rally to invest on equities now face the prospect of lost sales in the ensuing plunge.

"The stock market is going down too fast, this is wealth destruction," said Song Yang, a Hong Kong-based analyst at Barclays Plc.

"If you're losing so much money in the stock market, that dampens your desire to buy a car."

Automakers, including Volkswagen AG and General Motors Co, which count China as their largest market, have cut prices to defend their market share as demand slows and domestic rivals lure increasingly value-conscious customers with cheaper SUVs. But that has done little to spur demand.

Inventories have been at levels that indicate low market demand for nine consecutive months, with June's reading at the second-highest mark for this year, data from the China Automobile Dealers Association show.

Weak car demand is not expected to recover before September, according to Cui, who also said it is unlikely for the government to roll out any policy incentives to help spur vehicle demand in the near future.

John Zeng, the Shanghai-based managing director at researcher LMC Automotive, is struggling to be upbeat in the short term.

"Judging from the momentum, the second half is not looking too optimistic," he said. "The growth slowdown will continue. Automakers will be more cautious in terms of production."