Automakers in China are finding themselves in a “lose-lose situation” after a world-beating stock-market boom that diverted funds away from purchases turned into a bust, further denting demand in the world’s largest car market.
An increasing number of car buyers in China are canceling their purchases and risking forfeiture of their down payments after a stock-market rout that has erased about $3.2 trillion in value, according to Cui Dongshu, secretary-general of China’s Passenger Car Association.
“The plunging stock market is essentially a meat grinder, shredding money meant for buying cars,” Cui said in a phone interview. Auto sales fell last month for the first time in more than two years, according to figures released by the group Wednesday.
The rapid turn in the stock market, which saw the Shanghai Composite Index dive more than 30 percent since June 12 following a 150 percent surge in the preceding 12 months, 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 punt 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.”
Carmakers including Volkswagen AG and General Motors Co. have cut prices to defend market share as demand slows and domestic rivals lure increasingly value-conscious customers with cheaper sport-utility vehicles.
That’s done little to spur demand, with a survey by MNI Indicators showing the proportion of consumers who planned to buy a car shrinking last month. Inventory was 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. An estimated $2.6 trillion of shares, or about 40 percent of the market’s capitalization is now locked through trading suspensions by companies on the two Chinese exchanges, according to data compiled by Bloomberg.
“A lot of money will remain in the stock market, especially if people are losing money, as they won’t withdraw from the market immediately but will wait,” said Zhu Bin, a Shanghai-based analyst at LMC Automotive. “Traditionally Chinese consumers tend to buy big-ticket items around the year end or the start of the new year, so that would be the time when they’ll need the money.”
— With assistance by Tian Ying, and Alexandra Ho