China October Sales Slip Linked to Subsidy Cutbacks

October vehicle sales in China fell 4.2% from year-ago to 1,111,263 units as the government restricts subsidies for purchases of fuel-efficient vehicles.

The China Passenger Car Assn. says the result was the steepest monthly decline since 2008 and was down 12.9% from September.

October sees GM open major China facility, set sales record.

The sales retreat came after the Ministry of Finance revamped its 2-year-old subsidy policy for fuel-saving vehicles, making more than 70% of the original 427 models ineligible for assistance after Oct. 1.

“The withdrawal of subsidies for most fuel-saving vehicles helped produce the largest negative growth,” association Secretary-General Rao Da tells the government-owned China Daily newspaper.

The October sales drop compared with average growth of 4.4% in the year’s first 10 months.

Rao says passenger-vehicle production of 1,248,803 units was up 5% from like-2010, increasing pressure on auto makers' inventories.

“Inventories will continue to increase in November, as we believe that this month's sales will also decrease from last year's number, and maybe even with a bigger negative growth rate,” he says.

Rao tells the newspaper China should not end government support for energy-efficient vehicles, but instead encourage wider use of those with smaller engine capacity.

"The shrinking market for small-engine-capacity vehicles also made China's domestic producers lose market share and profits,” he says. “From a long-term perspective, it's hard for domestic automobile producers to catch up with foreign rivals in terms of technologies and products.”

Senior researcher Chen Qingtai, of the State Council Development Research Center, agrees with Rao.

“The government should frame policies to promote the wide usage of fuel-saving and smaller vehicles,” the China Daily quotes him as saying.

General Motors set an October record in China with sales rising 10.4% over year-ago to 220,412 units. Ford reports its sales roughly matched those of a year earlier, but its 10-month total was up 9% to 426,814.