China Car Sales Drop as Economic Woes, US Trade War Hit Buyers

China’s car sales fell for a third straight month as an intensifying trade dispute with the US and slowing economic growth are threatening to end the vehicle market’s almost three-decade expansion.

Retail sales of cars, SUVs and multipurpose vehicles declined 7.4% to 1.76 million units in August, the China Passenger Car Association said Monday in a statement. That compares with a 5.4% drop in July, and brings the year-to-date growth in the world’s biggest car market to 0.8%, Bloomberg reported.

Consumers are getting more cautious about spending on big-ticket items as China’s economy slows, hitting a car market led by Volkswagen AG and General Motors Co. The intensifying trade war is also having an impact: while just a small fraction of cars sold in China are imports, the higher retaliatory tariffs imposed by China on US-made cars are causing pricing uncertainties, keeping consumers away from showrooms.

“Winter is coming” for China’s car market, said Cui Dongshu, secretary general of the association. “Demand for SUVs may continue to slide through the year.”

Sales of SUVs, which have fueled China’s car demand for the past decade, fell 8.5% last month, the third year-on-year decline since May. Shoppers may be choosing cheaper and more fuel-efficient models amid concerns over the economy. The yuan has declined this year and stocks in Shanghai have slumped 18% since the start of 2018.

“China is heading into a period of slower growth,” said Steve Man, an auto analyst at Bloomberg Intelligence. “The economic uncertainties are likely to keep car buyers on the sidelines.”

 Sluggish Demand

To respond to the sluggish demand, Great Wall Motor Co., China’s biggest SUV maker, said this month it will cut prices of the Haval SUVs by as much as 27% through October as part of a marketing campaign with a theme of a “local brand rising to the challenge of trade war.” Great Wall is making strategy adjustments to make sure that annual sales goals can be met, board secretary Xu Hui told reporters in Hong Kong on Sept 3.

Changes in China’s import tariff policies in recent months had already been causing price swings—all creating uncertainty for car buyers. At the start of July, China lowered duties on all overseas imports to 15% from 25%, heeding decades of calls from global car makers for easier access to the market. Just days later, the country increased the duty on cars built in the US to 40%, leaving such vehicles at a significant disadvantage.

In the second quarter through June, GM’s sales growth in China slowed to 0.7% amid what it called a “softening” of the market. Ford Motor Co. reported a 36% drop in China sales for August, though sales of Ford-branded imported vehicles rose by 15%, helped by demand for the F-150 Raptor and the Mustang.

This month, Ford said it is canceling plans to import a new crossover model from a plant in China after US President Donald Trump’s tariffs undermined the business case for bringing the vehicle to the US market. Trump slapped China-built autos with an additional 25% levy in July.