Automakers on alert as China’s car market hits a bumpy road

The growth of China’s automobile industry has been in tandem with the country’s booming economy, outperforming its global peers to become the largest vehicle market in the world. A key element that pumped vigor into the throbbing industry has been the support of the government, mainly in the form of a flexible tax regimen.

Latest statistics show that the country’s auto sales dropped about 12% to 2.4 million units last month, continuing the downtrend started three months ago. The decline, the fastest in seven years, has triggered fears that the sector is on its way to the first contraction in several decades. Considering its sheer size, China’s faltering auto market is a cause for concern for automobile manufacturers across the world.

The credit scarcity faced by prospective buyers, trade tensions and the squeeze on consumer spending amidst slowing economic activity are blamed for the slump. If the softness persists, it could be detrimental to the Asian giant’s economy that is highly reliant on the auto industry, which is considered to be a gauge of people’s willingness to spend.

Considering its sheer size, China’s faltering auto market is a cause for concern for automobile manufacturers across the world

Worried over the sharp fall in sales, a leading auto dealers’ association in China has asked the government to slash the purchase tax, mainly on passenger vehicles. The dealers expect the relevant ministries to take a favorable stance as they did a couple of years ago. Meanwhile, the cash-strapped dealers and manufacturers are weighing multiple options to bring the sector back on track.

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It’s an undeniable fact that vehicle imports have been hit hard by the US-China trade standoff, hurting the sales of foreign brands, especially in the luxury segment. Some analysts attribute the abrupt slump in sales, after staying steady in the initial months of the year, to the government’s crackdown on China’s parallel lending system following the detection of gross mismanagement and defaults.

The private lending groups, commonly called peer-to-peer platforms, had cropped up everywhere after the authorities legalized the system a few years ago. With many of the lending platforms out of business now, demand for new vehicles plunged due to restricted loan availability. Adding to the woes, the government is planning additional measures to regulate the private lending scenario.

China’s car market is also bearing the brunt of the stricter pollution norms being imposed by regulatory agencies across the world.

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