China is buying fewer cars. GM and VW are feeling the pain

China is buying fewer cars. GM and VW are feeling the pain

HONG KONG (CNN Business) – Sales in the world’s biggest auto market are falling, causing big problems for top global brands that have come to rely on it for much of their growth.

China has been a source of blockbuster sales for major carmakers for years, as rapid economic growth gave millions of consumers the cash to spend on middle-class status symbols. For the likes of General Motors (GM) and Volkswagen (VLKAF), China brings in more revenue than the United States or Europe.

But those companies are now facing difficulties. The Chinese market has gotten a lot tougher this year as the wider economy has lost momentum and a trade war with the United States has ramped up.

VW said Tuesday that its sales in China dropped nearly 11% last month. A day earlier, GM said its sales in the country slumped 15% in the third quarter. Jaguar Land Rover is shutting down one of its British factories for two weeks after its China sales plummeted 46% in September. Ford’s (F) sales in the country have been sliding for months.

“After years of astronomical growth, China’s auto market is finally coming back to earth,” Beijing-based advisory firm Trivium said in a note Tuesday. Auto sales in China fell in both July and August, according to the China Association of Automobile Manufacturers.

The trade war with the United States has caused a “marked general uncertainty among consumers” that makes them reluctant to splash out on new cars, VW said.

The plunge in the Chinese stock market has compounded the problems, according to Yale Zhang, managing director at Shanghai-based consultancy Automotive Foresight. It’s wiped out large amounts of household wealth, making it harder to justify spending on big ticket purchases.

And new emissions standards that are set to take effect next year are making some consumers delay purchases, according to Trivium.

Foreign brands appear to be bearing the brunt of the slump. Sales of US models nosedived 20% in August compared with a year earlier, more than double the decline suffered by their Chinese rivals, according to data from the manufacturers’ association.

Some international automakers face particular challenges because of their model lineup. Companies like Jaguar Land Rover and GM are known in China for making gas-guzzling SUVs and other larger cars, which makes their vehicles less appealing after a recent surge in fuel prices.

“Gas prices will definitely have an effect on sales,” said Tu Le, head of Shanghai-based consultancy Sino Auto Insights.

Other brands, such as Ford and BMW (BMWYY), may be suffering because they’ve been slow to introduce their latest models, making consumers more inclined to wait until something newer comes onto the market.

Many Western automakers have set up manufacturing in China with local partners to sell cars directly into the Chinese market and avoid hefty import tariffs. But some high-end brands still ship in pricier models from overseas and have taken a hit from the trade war.

Daimler (DDAIF), the parent company of Mercedes Benz, warned in June that new Chinese tariffs on its American-made SUVs would hurt its profits. BMW said in July that it was raising prices in China for the SUVs it exports there from the United States, home to its biggest production plant.

BMW followed that with a profit warning in September, blaming in part “continuing international trade conflicts.”

Chinese buyers can switch from these brands to cheaper alternatives made by Japanese and South Korean companies, according to Le.

More broadly, the days of breakneck growth for international auto brands in China may not return. As the Chinese market matures, carmakers are becoming more reliant on selling less profitable cars to thriftier consumers beyond big, rich cities like Shanghai and Beijing.

“Slower growth is probably here to stay,” Le said.