China's automobile sales growth lost further momentum as the country's slowing economy sapped consumer sentiment, with potential buyers even resisting big discounts and promotions from automakers such as Ford and Toyota.

Overall sales, including those of passenger cars and commercial vehicles, grew 2.9 percent in the first half from a year earlier to 9.6 million vehicles, data released Wednesday by the China Association of Automobile Manufacturers (CAAM) shows.

That compares with a 3.4 percent gain in the year-earlier period and a 48 percent jump in the first half of 2010. With the slowdown, bloated levels of stock have become a common headache for auto makers and dealers.

"Previously, only dealers that sell local Chinese brands were under the inventory pressure, but now those handling foreign brands have also started to feel the pain too," Cui Dongshu, deputy secretary-general with China Passenger Car Association, told Reuters in a recent interview.

At many dealers selling BMW and other luxury models, inventory levels over the past few months have swelled to 60 to 90 days of stock, compared with more normal levels of 30 to 45 days, according to dealer executives.

"The government needs to come up with some supportive policies," Cui said.

In fact, some regional governments are doing the opposite and adopting policies to discourage auto sales. Since July 1, Guangzhou - China's southern export hub - began limiting sales.

The move made Guangzhou the fourth city in China, following Shanghai, Beijing and Guiyang, to cap car sales to ease chronic traffic congestion and pollution.

The local government said it would allow only a total of 120,000 new cars to be registered a year in the city of about 13 million people. Purchases typically surpass 300,000 annually.

"Some reports said 10 percent of our sales would be affected, but the impact on us would be very, very limited," said an executive at Zhongsheng Group Holdings Ltd, a dealer group with two stores in Guangzhou.

Executives at the Beijing-based company said new cars sales in Guangzhou accounted for only 2.5 percent of its total.

Even though Guangzhou's move will likely cut China's overall passenger car sales by only 1 percent, according to a research report by UBS, it may dent sales in the long run if other populous cities followed suit.

"Not only does a sales-restrictive move like this implemented in Guangzhou negatively impact consumer sentiment, it also might influence policymakers in other cities too," said Yale Zhang, head of Shanghai-based consulting firm Automotive Foresight.

The key question is whether more numerous, second-tier cities - many of them provincial capitals - would limit sales as well.

News Source: Reuters

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