New Car Sales Fall in China

The heart-stopping sales growth for new cars in China couldn’t last forever, and apparently it hasn’t. For some automakers sales are still growing, but more slowly than before, and for others, sales are declining. BYD Co. Ltd., of which Warren Buffett’s Berkshire Hathaway Inc. (NYSE: BRK.A) owns 10%, made just 36% of its full-year sales target of 800,000 cars in the first six months of 2010.

Similarly, Ford Motor Co. (NYSE:F) saw its sales drop 6.3% year-over-year in July, although for the first seven months of the year sales have risen by 38%. General Motors had a smaller increase in July sales compared with June sales, 22.2% vs. 23.2%. For the year to date, GM sales have grown 44.5% year-over-year.

Chinese car sales grew nearly 50% in 2009 when compared with 2008 on the backs of sensational economic growth in the country and a variety of government subsidies and incentives. Part of the decline this year is attributed to the huge numbers that China posted last year. Also getting part of the blame for the lower sales is the belief that the stimulus measures merely pulled demand forward and did not create new demand. The new car market is going to take a while to sort itself out.

China has introduced a number of new subsidies, at the same time that it raised the tax on small vehicles from 5% to 7.5%. Trade-in subsidies were increased and a subsidy of nearly $9,000 is now offered to buyers of battery-powered cars.

BYD is expected to debut its all-electric e6 model in the US before the end of this year. But that car is still too expensive for many Chinese buyers, with a projected sticker price of $40,000, about the same as the Chevy Volt and the Nissan Leaf. For BYD to meet its 2010 sales goal it first needs to boost its plant capacity, which is now stalled on the local level. Still BYD’s projected sales based on selling the same number of cars in the second half of the year as the company sold in the first half is more than 575,000 cars. That’s a nice gain over the 400,000 vehicles BYD sold in 2009.

In the US, GM is reporting a 5.4% jump year-over-year in July sales. Ford’s US sales grew 3.1% in July compared with last year. Volkswagen AG also reported that US sales grew 16% year-over-year.

Growth in US sales may be partly due to psychology. Auto-industry research firm Edmunds.com notes that US consumers have been conditioned to believe that good deals on new cars come around in the summer. Add to that the certainty that there will be no further “cash for clunkers” incentives in the US, and some pent-up demand might finally be making its way into the market. If that’s true, US car sales will be volatile for some months yet.

Chinese buyers are expected to purchase about 14.3 million new vehicles this year, substantially better than last year’s 13 million. US sales, based on July sales figures, are expected to hit about 11.8 million new cars in 2010.

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