CAR sales in China continued to decline in January after their first full-year slump in more than two decades, adding to pressure on automakers who bet heavily on the market amid waning demand for cars from the United States to Europe.

Wholesale passenger vehicle sales fell 17.7 percent year on year, the biggest drop since the market began to contract in the middle of last year, the China Association of Automobile Manufactures (CAAM) said yesterday.

The CAAM said in a statement that sales dropped to 2.37 million vehicles last month. This follows a 13-percent drop in December and a 14-percent fall in November.

“Car sales in January continued to decline, and there was no sign of improvement. We estimate that February wholesales will also drop sharply” said Xu Haidong, CAAM assistant secretary general.

“The reason for the sales drop is still the slowing overall economy, and consumption decline in small and medium-sized cities” Xu said.

China has been grappling with slowing economic growth as well as the fallout of trade frictions with the United States, forces which contributed to its auto market contracting for the first time in more than two decades last year.

“First-quarter sales were good last year, so this year the industry expects to have negative growth in the first quarter,” said Yale Zhang, head of consultancy AutoForesight, but he predicts sales to gradually pick up in the next three quarters.

China is now trying to persuade consumers to loosen their purse strings and has pledged to provide subsidies to boost rural sales of some vehicles and purchases of new energy vehicles.

“Downward pressure is still there,” Gu Yatao, a Beijing-based auto analyst with Roland Berger, said before the figures were released. “The government isn’t adopting stimulating policies to give the market a shot in the arm.”

Industry executives also say China’s car sales in January and February tend to be affected by the Chinese New Year holiday, as consumers hold off on their car purchasing decisions around the festival.

China’s sales of new energy vehicles, however, continued to buck the trend, totalling 95,700 in January, a year-on-year increase of 140 percent, the CAAM said.

Carmakers in China will face more fierce competition this year, the CAAM said.

The association expects the weakness to persist and has forecast flat sales of 28.1 million vehicles for 2019, while other government and industry bodies see a 0-2 percent growth.

Companies such as homegrown Geely and Britain’s biggest automaker Jaguar Land Rover have already flagged caution about China sales in 2019.

China’s top economic planner has said it will introduce policies to lift domestic spending on items such as autos, without providing specifics. The government has also made changes to the income tax threshold to hike incomes and personal spending power.

This could help resolve the industry’s current issues of unsold inventory, drive sales growth and provide relief to the economic pressures China is facing, said Patrick Yuan, a Hong Kong-based analyst at Jefferies.

“With that, car sales growth could recover to as high as 7 percent” this year, he said.

(SD-Agencies)