GM's sales drop in China puts forecast in doubt

BEIJING -- General Motors Corp. Asia Pacific President Nick Reilly said the company's vehicle sales in China fell in August and September from a year earlier, as overall demand for autos cooled in the world's second largest auto market.

The decline for two consecutive months is rare for GM in China, where the auto maker has taken advantage of explosive growth over the past several years to become a top brand. It comes at a particularly bad time for the Detroit auto maker, which needs strong sales in emerging markets like China to shore up its weak outlook in North America.

GM has argued that the company's rapid growth in China, among other emerging markets, would help offset U.S. market share losses, even though China remains a small portion of GM's total sales.

Mr. Reilly declined to provide any figures for those two months, and GM hasn't released third-quarter sales data for China.

Still, his acknowledgement of sluggish GM sales in China raises questions about the optimism GM has maintained for its business outlook here.

"We remain optimistic about growth here, we do expect vehicle sales in China to pick up in the fourth quarter of the year and to continue to outpace global growth as a whole," Mr. Reilly said via email late Tuesday in response to questions from Dow Jones Newswires.

When asked about GM's previous forecast of 11% to 12% overall sales growth in the Chinese auto market for 2008, Mr. Reilly said, "The market is too unpredictable to forecast with any credibility."

GM has been a top brand in China since it began producing vehicles here in 1999. But this year, the U.S. auto maker is being outsold in the passenger car market, a critical subset of China's overall market that excludes commercial vehicles, by Toyota Motor Corp.

U.S. consulting firm J.D. Power predicts Toyota this year will become the country's No. 2 marketer of passenger cars, supplanting GM, as the American auto maker's China sales contract as much as 5.5% this year, its first decline since 1999. The leading seller of passenger cars in China is Volkswagen AG.

Michael Dunne, J.D. Power and Associates' Asia managing director, said the the firm expects China's overall vehicle market to grow 7.5% this year from 2007, with earlier but "flat sales" in the fourth quarter.

Overall auto sales in China, including both passenger cars and commercial vehicles, fell 6.3% in August and 2.7% in September, compared with the same months a year earlier, according to data from the China Association of Automobile Manufacturers.