China Sales Slide Threatens Car Makers’ Profits.
Germans The Most Exposed, But Strong Brands Will Help.
China’s auto market has hit a wall and investors are wondering which companies stand to lose the most if sales don’t recover.
Sales in China dropped nearly 30 per cent in the first week of September, and investment researcher Evercore ISI said this weakness will continue unless the government restores lending stimulus. Evercore ISI estimates sales for the 4th quarter of 2018 will dive close to 10 per cent, with overall sales for the year flat, or up to 2 per cent down.
China sales fell in August by 3.8 per cent to 2.1 million, after a 4 per cent drop in July, according to the China Association of Automobile Manufacturers. Consumers are worried about developing trade tensions between China and the U.S., while bank lending has been curbed by government action.
The Wall Street Journal’s Heard on the Street column said Nissan and Volkswagen earn nearly a quarter of their pre-tax profit from China, with General Motors not far behind. But Ford Motor lost $483 million in China in the second quarter, as imports of Explorers fell.
Bernstein Research said the Germans are the most exposed in China, with BMW and Mercedes earning about 40 per cent of their profits there.
“The Germans have the most to lose in China, but have been protected from the slowdown by their strong brands,” Heard on the Street columnist Stephen Wilmot said.
“For them, the tariffs on U.S. built cars exported to the country are a bigger problem. A decision to split the cost of the tariff with its Chinese customers will hit BMW’s profits by roughly €300 million this year, while Daimler blamed the tariffs in part for a June profit warning,” Wilmot said.