Data released Monday shows that the slowdown in China, the largest car market in the world, is worsening. And the United States is considering imposing tariffs on imported cars, a decision that would severely affect global brands.
According to the China Automobile Manufacturers Association, sales of passenger cars in China fell nearly 18 percent in January from a year ago. This is the last worrying sign for global brands such as General Motors (GM) and Volkswagen (VLKAF), which now depend on blockbusters sold to Chinese consumers.
Sales in the Chinese auto market turned negative last July and the slump lasted until the seventh month. Annual car sales declined in 2018 for the first time in 20 years.
The world's second largest economy is affected by the government's attempts to limit risky lending after the rapid rise in the level of debt. Trade tensions with the United States and the removal of Chinese subsidies to the auto sector are compounding the situation.
Some of the world's best known automakers are suffering. GM announced last month that its sales in China have dropped by 10% compared to 2017. The company based in Detroit hopes to reverse the trend this year by marketing more than 20 new models in China and focusing on electric vehicles. From Ford (F) sales in China fell by more than a third in 2018.
Although the German Volkswagen group (including Audi) recorded record sales in China in 2018, growth has since dried up. Sales of Volkswagen brand vehicles fell 3% in January.
Trump considering tariffs
German manufacturers would be particularly affected by US tariffs. US Secretary of Commerce Wilbur Ross presented Sunday to President Donald Trump the results of an investigation to determine whether imports of cars and parts were threatening the national security of the United States.
Trump has 90 days to respond to the findings of the report. It could decide to impose tariffs of up to 25% on vehicle imports, which, according to experts, would be very detrimental for companies in Europe and elsewhere.
Customs duties of this magnitude could lead to a drop in German auto exports to the United States by about 50% within ten years, the Institute for Economic Research announced Friday. Ifo, based in Munich.
The United States is an important market for companies such as Volkswagen and Daimler (DDAIF), the owner of Mercedes-Benz.
Experts have also warned that any move to increase US tariffs on foreign vehicles could also hurt the US auto industry, which relies on imported components. In the worst case, tariffs could result in the loss of thousands of jobs in the US auto sector and soaring prices for US consumers, warned Michigan-based pressure group Center for Automotive Research, which month.
Serenitie Wang contributed to this report.