China car sales rise, but at slower pace

The Wall Street Journal (Shanghai) - China's auto sales rose 11% in March, an unexpected deceleration from the first two months of this year as state-run media raised quality concerns about some foreign and domestic brands.

There were 2.04 million vehicles sold in China last month, up from 1.84 million a year earlier, according to the semiofficial China Association of Automobile Manufacturers. However, the growth rate eased from the 15% year-to-year gain for the January-February period.

The slowdown was more pronounced in the passenger-car segment. March sales growth for sedans, sport-utility vehicles and other passenger vehicles was 13%, down from 20% in the first two months of the year.

The result came as a surprise because March is traditionally a busy season for car sales. Car makers launched 30 new models in China last month, more than the combined 24 models in the January-February period, according to data from the China Passenger Car Association, a research group.

Some analysts cited criticism of some car brands, including Volkswagen AG, during a program on state-run China Central Television that aired on March 15. That day is World Consumer Rights Day, and Chinese state media often use that date to criticize both foreign and domestic companies. "I think the slower growth was due in part to the 3/15 broadcast by CCTV, which accused Volkswagen and a Chinese brand of quality issues," said Wang Yanxue, an analyst at Beijing-based Huachuang Securities.

CCTV alleged that Volkswagen sold cars in China with defective gearbox systems. After the CCTV report, Volkswagen said it would recall more than 384,000 vehicles. The company controls a roughly 20% share of China's sedan market.

The CCTV report also accused China's Anhui Jianghuai Automobile Co., or JAC, of using low-quality steel plates in its cars. According to CCTV, rust formed on some of JAC's Tong Yue brand of cars after just a couple of years of use. Jianghuai recalled more than 117,000 cars and apologized.

"More or less, the CCTV report has hurt confidence about Chinese-made cars. Some consumers have postponed their purchase plans," Mr. Wang said.

CCTV reports also have led to business disruptions in other industries over the past year. Its broadcasts in December related to a probe of the chicken quality at Yum Brands Inc.'s KFC outlets contributed to a 6% sales decline in the fourth quarter in China.

Analysts remain optimistic about China's car market, citing solid demand. "The overall first-quarter performance is better than expected, which bodes well for the car market this year," CAAM said in a written statement on its website. UBS Securities also said demand for cars is expected to continue to grow, in line with China's economic recovery. "In particular, medium- and low-income population is more sensitive to economic swings," the brokerage said.

In the passenger-car market, German car makers continued to lead foreign brands but their share fell slightly to 18.28% in March from 19.34% in the January-February period.

Over the same period, the share for Japanese brands rose to 15.03% from 12.54%, indicating that a sharp slump since late last year might have bottomed out. Japanese car makers have been struggling in China amid consumer backlash stemming from a territorial dispute between Beijing and Tokyo over a group of uninhabited islands.Toyota Motor Corp., Japan's largest car maker by production, said its China sales slid 12% from a year earlier in March, less severe than the 13% drop in combined sales in the first two months of the year.