2010-07-22 16:21

China's appetite for cars has slowed and Zhu Dongwei, an auto salesman in the central Chinese city of Zhengzhou, is doing all he can to whet it.

Customers at Zhu's General Motors Co dealership get a 14 percent discount, a refund of sales tax and a chance to win a free iPod if they buy a 41,800 yuan ($6,170) Matiz compact car.

"This is our biggest promotion this year," Zhu said. "Without discounts, many people would wait, not buy."

Demand in the world's largest vehicle market may drop from year-earlier levels in the second half of this year, triggering price wars as dealers compete to clear inventories, according to Credit Suisse Group AG and IHS Automotive. Wholesale passenger-car deliveries in June gained at the slowest pace in 15 months as inflation reduced buyers' purchasing power.

"Some dealers and automakers may panic and offer the largest discounts they can," said Yale Zhang, a Shanghai-based analyst at consultant IHS Automotive. "If prices of daily necessities keep soaring, people's expectations of their future financial security will be undermined, reducing their desire to buy a car."

China's auto sales, which have increased every month since February 2009, began growing at a slower pace in April amid rising prices for consumer goods and signs of economic cooling.

Easing GDP growth

The government also raised the sales tax on small cars to 7.5 percent this year after cutting it in half to 5 percent last year. The tax cut helped last year's vehicle sales surge 46 percent to 13.6 million, surpassing the US for the first time.

Wholesale passenger-car sales in June grew 19 percent from a year earlier, the slowest pace in 15 months, as China's inflation rate stood at 2.9 percent, the second-highest rate this year. The nation's gross domestic product expansion eased to 10.3 percent in the second quarter from 11.9 percent in the preceding three months, the statistics bureau said on July 15.

"The uncertainty of the macro-economy will influence people's confidence, leading to a slowdown in auto sales growth," said Xu Minfeng, an analyst at Central China Securities in Shanghai. "The phasing out of some favorable policies for car buyers last year, such as the increased sales tax, has also contributed."

Average prices of China's locally made passenger cars fell by 2.08 percent in June from a year earlier, the biggest decline this year, according to the National Development and Reform Commission.