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Is China’s Car Market About to Stall?

Sales to miss government’s already modest expectations; margins also softening.

by on Mar.22, 2012

Mercedes is reportedly slashing prices by as much as 25% in China.

At a time when the world auto industry was ready to collapse, the Chinese market offered a rare and desperately sought beacon of hope.  Even as demand in the U.S. market plunged to its lowest levels in decades, China continued to deliver double-digit growth, propelling the emerging market to global sales leadership.

Ironically, as the U.S. market recovery begins to heat up, China is showing signs of an unexpected slowdown – one that is proving particularly worrisome in the luxury segment, and which could slam manufacturers like Mercedes-Benz, BMW and Audi who have counted on China for a disproportionate share of their profits in recent years.

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For the year-to-date, Chinese light vehicle sales are down a notable 4.4%.  The China Association of Automobile Manufacturers now predicts overall sales will only grow by about 5% for the full year – missing the government’s goal of 7%.  By global standards, that’s nonetheless significant – but put into perspective it’s clearly worrisome when one recalls recent annual growth rates that, at times, approached 100%.