The Chinese automotive industry is suffering its first sustained downturn in at least two decades.  As previewed in our July update, sales in China started to turn over the summer.  After a 4.8% increase in June, sales fell by 4% in July and 3.8% in August.  In September, vehicle sales fell by 11.6%, with SUVs, the strongest performer, suffering a 10.1% drop that month.  In October, Chinese officials said lower auto sales were the “new normal.”  October sales declined by 13%, and November saw the decline steepen further to 19%.  Sales of SUVs were down 16% in November compared to 2017.

The Chinese auto industry originally projected a 3% sales growth for the year, but sales to date are now down 1.7% year over year.

Analysts blame a variety of factors for the decline: a trade war with the US, a crackdown on peer-to-peer lending, a pollution crackdown, and slower economic growth in China.  Forbes raised the question whether China’s auto market has reached its “saturation point”, and Bloomberg posited that China’s auto market was “maturing” such that buyers are not purchasing anything and everything any longer.

Now, the industry is considering how the decline will affect the economy as a whole.  The assistant secretary general of the China Association of Automobile Manufacturers said “The automotive industry has been a driver of China’s economic growth for years.  Now it is pulling back.”  Factories are feeling the impact, and retail sales are also growing at their weakest pace since 2003.

Whether the trade war will continue is yet to be seen, with the US and China engaging in ongoing talks.  Just three days ago, China temporarily suspended additional tariffs on US vehicles and auto parts, such that tariffs will fall from 40 percent to 15 percent for January through March.  However, the lower tariffs are not expected to have a major impact on car sales.  In the meantime, China’s auto market is set to contract for the first time since the early 1990s.