China stock crash saps sales, automakers buckle up

Automakers in China may be forced to come up with more drastic mitigation measures when July sales results released from this week likely reveal a fourth month of contraction after a stock market crash sapped consumer sentiment.

Many Chinese who put money in the mainland bull market in the first half of 2015 had to delay big-ticket purchases like cars, analysts said. But a crash from mid-June erased as much as $4 trillion in share value in under a month. What is left of their money is now locked in stocks as many try to avoid losses.

Sales in the world's biggest auto market have been hit by declining sentiment as the economy grows at its slowest in 25 years, prompting cost-cutting and discounts. But the crash likely left July sales falling more than June's 2.3 percent, analysts said.

"Car manufacturers are biting their nails as they wait to see July sales and the full impact the stock market crash really had," said a Shanghai-based executive at a major U.S. carmaker.

China's auto manufacturing body said it more than halved its 2015 sales forecast because of the crash's impact on sentiment, while consultancy Automotive Foresight last week demonstrated a correlation between money locked in stocks and falling sales.

Audi AG sales chief Christian Klingler, in a conference call on Thursday, said China will turn "into a bumpy road in the next few months".

The government took several measures to stabilise share prices, but they continue to fluctuate wildly with last week seeing the steepest single-day fall since 2007.

Analysts expect car sales will continue to be weak at least until stocks stabilise as fear of another tumble cloud consumers' future finances in uncertainty.

MARKET CHILL

Automakers, many of whom have already flagged slowing sales, start reporting China figures on Monday, beginning with Japan's Toyota Motor Corp. The China Association of Automobile Manufacturers releases overall market data next week.

Toyota and compatriots like Honda Motor Co Ltd look likely to lead the pack due to strong sales of new sports utility vehicles (SUVs) as many middle-class Chinese trade up from sedans.

Automakers without top-selling SUVs, such as Volkswagen AG and General Motors Co, have fared less well and may need to further cut costs and prices, analysts said. On Wednesday, Peugeot SA said it would review costs.

Mazda Motor Corp, one of this year's front-runners, said it is concerned over-capacity may force automakers to offer more buying incentives and even sell at a loss.

"The rate of growth is stalling... On top of that is the stock market fall. Consumers are mentally chilled," said Masahiro Moro, Mazda's managing executive officer and head of global marketing. "Up to now it's been growth and growth."

An executive at Audi said automakers need to expand their financing, insurance and used car businesses.

"(Dealers) reflect that the glory days are over of selling cars above list price," the executive said. "It's now a competitive market like Western Europe."