Car sales in China dipped 0.1 per cent in May from a year earlier, marking the first decline in more than two years amid a rapid slowdown in the world's biggest auto market.
After two consecutive years of frantic expansion, car sales in China settled into a subdued growth pattern at the beginning of 2011, with year-to-date sales up a mere 6.1 per cent, having surged by almost two-thirds in 2010.
Japanese manufacturers, suffering from production disruptions in the aftermath of the devastating earthquake and tsunami, continue to report weak China sales.
The Chinese market may continue to soften in the summer months, a traditionally slack season for car sales, followed by a moderate rebound in autumn, industry observers say.
"June and July have never been the best months for auto sales and flat growth would be the best scenario this year," said Jenny Gu, J.D. Power's senior market analyst based in Shanghai. "Demand may pick up a bit in autumn, but it's unlikely to be anything close to the surge in 2009 and 2010."
September and October are the so-called "gold and silver" months for Chinese auto dealers, a time when those hoping to get behind the wheels at the best leisure travel season of the year typically flock to showrooms.
Dong Yang, secretary general of the China Association of Automobile Manufacturers (CAAM), said he expects monthly declines ahead, with overall 2011 vehicle sales growth likely falling short of the previous forecast of 10-15 per cent.
"Auto sales won't fall every month in the rest of the year, but we will certainly see more monthly declines ahead," Dong told reporters. He declined to disclose a new vehicle sales estimate for 2011.
At a Chevrolet dealer in Shanghai, sales have been lukewarm, despite market expectations of a cut-back on Beijing's 3,000 yuan (about $460 U.S.) subsidies for buyers of fuel-efficient cars.
Under a separate incentive plan from one started in 2009, Beijing started handing out the rebates to buyers of fuel-efficient cars in June 2010 to promote the sector, a move projected to cover more than 4 million such vehicles by 2012.
An unnamed official with China's science and technology ministry was quoted recently by local media as saying the government may raise the threshold for vehicles to qualify. The official did not elaborate.
"Sales are much slower now than a year earlier. We would be very happy if we can move over 150 cars every month," Meng Yi, a sales manager told Reuters, adding the monthly tally in the past could easily top 200 or 300 units.
"People don't seem to care about whether the 3,000 yuan handouts will be there or not next month because the government had already stripped away most of the other subsidies at the end of 2010," Mr. Meng said.
Industry observers are divided over the market outlook for the rest of the year. Optimists still expect the market to finish the year with a positive note, but pessimists predict a decline of as much as 10 per cent.
In a research note issued late last month, AlixPartners forecast annual growth of up to 15 per cent for light vehicle sales in China between now and 2016, thanks to growing wealth of urban households.
In May, nationwide sales of sedans, sport utility vehicles and multi-purpose vehicles came to 1.04 million units, compared with 1.14 million a year earlier, according to data released on Thursday by CAAM.
Overall vehicle sales in the month, including trucks and buses, fell 3.98 per cent from year earlier to 1.38 million units.
Auto sales elsewhere softened. In the United States, car sales sputtered in May, slumping to levels much lower than expected as higher vehicle prices and a weakening economy led consumers to delay purchases.
In India car sales rose 7 per cent in May, their slowest pace of growth in two years, and analysts expect a further decline as higher fuel prices, interest rates and vehicle costs crimp demand in the world's second-fastest growing vehicle market.
By comparison, Japanese auto sales fell by a third in May, the lowest total for the month since 1968, as car makers struggled to restart production after the earthquake and tsunami that roiled the country in March.
In 2009, Beijing introduced tax incentives for small cars and handed out subsidies for farmers who traded in old, gas-guzzling vehicles for more fuel-efficient ones, a move that helped China eclipse the United States as the world's top auto market.
The government scaled back the package in 2010 and scrapped the package completely at the end of last year to steer the market to a slower, but hopefully more sustainable growth pattern.
The pullback was sudden. The country's once-sizzling auto sales have cooled significantly since the beginning of the year, after expanding by a third in 2010 and more than half in 2009.
Makers of pickup trucks and mini-vans, including General Motors' venture in southern China, were hit hardest as farmers were no longer motivated to buy them without government subsidies.
In May, sales of GM-SAIC-Wuling fell 10.8 per cent from a year earlier, pulling down GM's overall China sales growth to negative territory for the second month in a row.
Toyota Motor's May China sales tumbled 35 per cent, with sales of Honda Motor down 31.9 per cent.
Bucking the trend, Ford Motor moved 14 per cent more vehicles to its China dealers in May.