Second-half auto sales are likely to grow -- but more slowly than in the past, because of challenging domestic and foreign conditions, China Association of Automobile Manufacturers (CAAM) deputy director Dong Yang told Xinhua on Thursday.

Figures from CAAM show sales of domestically made cars in July plunged 17 percent month-on-month, although they rose 6.79 percent year-on-year.

Still, some analysts expect China's auto sales could rise by double digits this year, in contrast to sluggish markets in the United States and Japan, the world's biggest and third-largest car markets, respectively.

Challenges weigh on industry

There are challenges for both car makers and their customers.

One is high world crude prices, which led China to raise benchmark gasoline and diesel oil retail prices by 1,000 yuan (US$147) per ton on June 20.

Citigroup economist Ken Peng said that with the consumer price index falling to a 10-month low of 6.3 percent in July, there might be another increase in fuel prices after the Olympics, as the government control of fuel prices was meant to curb inflation.

Another issue is costs. Dong noted that production costs were rising as the prices of inputs like electricity, steel, rubber, glass and plastics had been rising since the second half of last year, which added to the burdens of manufacturers.

Then there are vehicle taxes. As part of its energy savings campaign, the government announced on Wednesday that the tax rate on cars with engine capacities of 3 to 4 liters will rise to 25 percent from 15 percent, starting from September 1.

And then there's China's tight monetary policy. Curbing commercial loans and raising interest rates to avoid economic overheating is creating challenging conditions for industry as the second half proceeds.

China still a bright spot

According to media reports, first-half sales of new autos in the United States fell 17 percent year-on-year, while Japan saw a decline of 2 percent in domestically produced car sales.

By contrast, China's first-half auto sales increased 18.52 percent year-on-year.

Considering last year's sales of 8.8 million units, the double-digit growth achieved on that base didn't come easy.

Analysts with China Economic Information Network believed as people were getting richer, personal consumption would be the driving force for auto sales. They said China's auto market was entering a sustained period of growth that would last for 15 to 20 years.

Foreign auto makers see gains in China

CAAM figures show cars produced by Sino-foreign equity joint ventures took up a 75-percent share of the market in the first seven months, up slightly over last year.

General Motors (GM), the largest US auto maker, said it sold 590,126 vehicles in China in the first half, up 12.7 percent year-on-year. Ford reported sales rising 21 percent to 172,411 units.

Foreign auto makers are competing aggressively in China, where sales are expanding at double-digit rates and major US, European and Asian producers have set up factories.

Kevin E. Wale, GM China president, said the company's multi-brand strategy was paying off, as its Chevrolet, Buick, Cadillac and Wuling all received positive feedback from Chinese consumers.

Having the broadest market, GM expected to sell 1 million units over the full year in China.

Core Pacific-Yamaichi Securities has forecast 2008 auto sales growth of 15 percent year-on-year.

Dong added that China was still growing fast. He said the nation has up to 100 million households that can afford a car, but only 20 million have bought one so far.

(Xinhua News Agency August 14, 2008)