SUV sales may slow in China on oil cost rise

SALES of sport-utility vehicles (SUVs) in the Chinese mainland, the fastest-growing segment of the country's auto market last year, may slow after the Chinese central government raised gasoline prices, Fitch Ratings Ltd said.

The increase "will change motorists' behavior and push them toward vehicles with better fuel consumption," Fitch analyst Matthew Kong said by phone with Bloomberg News last Friday. "The change of preference will impact the makers of cheap SUVs, such as Great Wall, the most."

Sales of Great Wall Motor Co Hovers and other SUVs leapt 50 percent last year, twice the pace of the overall auto market, helped by China's economic growth and cheap fuel. The 17 percent rise in gasoline prices may stunt demand, mirroring the United States, where higher fuel costs have caused sales of large SUVs, such as Toyota Motor Corp's Sequoia to drop a third this year.

"Rising fuel prices will surely damp demand for SUVs in China," said Vivien Chan, an analyst at Sun Hung Kai Securities Ltd. "Consumers who want to own an SUV will hold on and watch how much further prices will go up."

China, the world's second-largest auto market, raised the price of gasoline, diesel and other fuels last week to cool its economy and reduce energy use. Automobiles account for about half of China's total oil consumption, and this may rise to 60 percent by 2020, according to the Development Research Center of the State Council.

Rising affluence has boosted sales of SUVs and larger cars, while causing a plunge in demand for cheaper, more fuel efficient autos. Sales of low-cost compacts, powered by engines of less than 1 liter, fell 31 percent last year, even as industrywide passenger-car sales rose 22 percent.

Chery Automobile Co's 1-liter QQ compact, costing 45,800 yuan (US$6,662), can go as far as 28 kilometers on a liter of gasoline. Great Wall's Hover, which starts at 105,800 yuan, gets an average of 8.1 kilometers a liter, Sina.com said.