Foreign Automakers Worried over Economy in China Slowing

Peugeot, Volkswagen and BMW all reported a slowdown in sales in their recent earnings reports, while Ford singled out the economy in China as a big risk.

Sales of passenger vehicles fell close to 7% during July reaching their lowest level of the past 17 months, as production tumbled by 12%, according to data released by the China Association of Automobile Manufacturers.

Weak sales were reflective of the slowdown in growth in the economy said industry analysts with little sign there will be improvement over the short term.

Volkswagen the largest automaker in the world has watched its stock fall close to 12% the past month. Daimler the owner of Mercedes and BMW have suffered falls that are similar, while Toyota is down close to 19% during the same period.

Increased wages of recent helped to fuel new car purchasing in China. Auto sales surged an incredible 24% per year between 2005 and 2011, making China the largest car market in the world ahead of the United States.

Carmakers raced to make their footprint bigger in China, building new factories and striking up deals with local businesses.

However, the auto industry has run into problems of late as the economic growth in China fell to his slowest pace in the past six years.

A rout of the stock market this summer hurt the consumer sentiment, adding to the woes of the car industry, and cities such as Shenzhen and Beijing restricted the amount of new cars that could be registered through limiting how many license plates were printed in their effort to curb traffic congestion and pollution.

Car dealerships are slashing prices to entice buyers as well as lowering inventories, sparking what a number of carmakers warn could become a huge price war.

Auto companies will have to increasingly look for more growth from smaller cities, where there are not any vehicle restrictions, says local analysts.

Carmakers might see some boost once there is auto financing in China, as the majority of people pay cash for their vehicles.

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