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Casualties of China's Stock Collapse - Cadillacs and Toyotas

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The rout in China stocks is posing another threat to the world’s biggest car market, jeopardizing growth plans for companies from Volkswagen AG to General Motors Co.

Chinese equities have suffered the biggest plunge since 1996, leaving would-be buyers with less cash to spend. Dealers are already reporting lost sales from the stock tumult and automakers are bracing for more pain after a slowdown in the once-hot car market.

“Dealers are gritting their teeth,” said Zhu Kongyuan, secretary general of the China Auto Dealers Chamber of Commerce, a Beijing-based trade group. “People won’t buy cars if they think their money bags will shrink. There are no magic tricks here.”

Global automakers have plowed billions of dollars into Chinese factories to keep up with a market that’s grown eightfold since 2000 and surpassed the U.S. in 2009. BMW AG said earlier this month that spooked local consumers may force it to lower this year’s profitability goals, while Toyota Motor Corp. said prices were deteriorating and sapping optimism about its recovering sales.

Kang Peng, a sales consultant at a Cadillac dealership in Beijing, said two customers asked to halt the delivery of cars they’d ordered as a result of the recent market turmoil.

“They’ve been affected by the stock market and couldn’t come up with the funds,” Kang said in a telephone interview.

Zero Down

Among the foreign companies with the most at stake in China are GM and Volkswagen, which both sell more than 30 percent of their vehicles in the country. Volkswagen and its Chinese joint venture partners have said they plan to invest 22 billion euros ($25 billion) in China by 2019, while the joint venture between GM and SAIC Motor Corp. will spend 100 billion yuan ($15.6 billion) by 2020.

“Despite a challenging market environment, Volkswagen Group China is targeting to maintain our position as market leader in the Chinese auto market,” Larissa Braun, a spokeswoman for Volkswagen, said by e-mail. “We believe in the long-term success and we cling to our development plans.”

In the first seven months of the year, GM’s Cadillac brand increased its China sales by 12 percent. Overall, its deliveries in the country were up 3.3 percent.

“This is a pretty tough market environment,” GM’s Shanghai-based spokeswoman Irene Shen said in an e-mail. “There’s a great deal of hard work being done to overcome the headwinds. For the long term, we believe the market will continue to grow.”

Automakers and dealers have already been offering incentives, subsidized insurance, zero-down financing, interest-free loans and higher trade-in prices in a bid to lure car buyers back to showrooms. The efforts fell short in July, when consumers bought the fewest passenger vehicles in 17 months.

Stock Rout

China’s auto dealers last month forecast that any growth in sales this year would depend on stock prices stabilizing and the economy recovering. Instead, the Shanghai Composite Index sank below the 3,000 level this week for the first time in eight months.

The stock rout has only deepened following China’s unexpected devaluation of the yuan on Aug. 11, which sparked concern that the slowdown in the world’s second-largest economy is worse than anticipated.

Carmakers will now manufacture fewer vehicles locally this year than they’re able to as demand slows, analysts at Sanford C. Bernstein said last month. Volkswagen suffered its first sales drop in a decade in the six months through July, as it missed out on demand for budget-priced SUVs.

Additional Problem

“It’s more than just the stock market that’s been affecting sales,” said Luo Jin, sales manager at a Volkswagen distributor in Shanghai. “Things have been weak this year, and the stock market adds to the problem.”

The still-low rate of car ownership in China is enough for companies like Daimler AG to pledge continued investment in the market despite the market tumult. Hubertus Troska, the head of Daimler in China, said Monday that while his optimism was subject to stock prices stabilizing, the Mercedes-Benz maker will still exceed its annual sales target this year.

“There are still people checking out cars today,” said Yan Jinghui, deputy general manager of Beijing Asia Games Village Automobile Exchange, the biggest auto mall in the capital city. “There are lots of factors impacting car purchases, and stock market fluctuation is just one.”

— With assistance by Alexandra Ho, and Tian Ying

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