UPDATE 1-China March car sales growth cools on slowing economy

Wed Apr 11, 2012 4:57am EDT

* Slow economy, higher fuel prices weigh on outlook

* LMC has cut 2012 China car sales forecast

* Sales likely to pick up in H2 thanks to new models

* Dongfeng, SAIC expect to outpace 7-8 pct gain of China market

By Fang Yan and Ken Wills

BEIJING, April 11 (Reuters) - Car sales in China climbed a modest 4.5 percent in March from a year earlier, pulling back sharply from a hefty gain in February, a s a slowing economy and higher fuel prices kept customers away from showrooms.

Sales declined 1.3 percent in the first quarter, in a downtrend that started in January when automakers and dealers cut working hours during China's lunar new year holiday.

Weak sentiment may continue into the second quarter, but new car launches planned for after the weeklong Beijing autoshow, which kicks off on April 23, will bolster auto sales, industry observers say.

"March was never a very good month for car sales. Now that the government cut the GDP target and raised fuel prices, you can imagine the psychological impact that could have on people who are thinking about buying cars," said Sheng Ye, associate research director for Greater China at industry consultancy Ipsos.

In mid-March, Chinese Premier Wen Jiabao cut the country's 2012 GDP growth target to 7.5 percent, the lowest since 1999, to steer the economy to a more balanced growth pattern.

Days later, the government raised retail gasoline prices for the second time in six weeks, making them about 25 percent higher than the average price in the United States.

Higher fuel prices might have little impact on the moneyed class, but the price hikes are giving others pause.

Liang Li, an English teacher in Shanghai, has decided to delay plans to buy a car.

"I wanted to buy a car and I still do, no question about that. But I am not buying it right after the price hike."

In March, a total of 1.4 million sedans, SUVs, MPVs and mini vans were sold in the country, the China Association of Automobile Manufacturers (CAAM) said on Wednesday. In the same month of 2011, that number was 1.34 million.

The March 2012 number compared with 1.16 million and 1.21 million sold in January and February, respectively, according to CAAM. In February 2011, only 967,200 vehicles were sold, partly because of the lunar new year effect.

Deliveries in the first quarter came to 3.77 million, compared with 3.84 million a year earlier.

In the United States, auto sales rose about 13 percent in March as consumers, energized by an improving job market, replaced aging vehicles and took advantage of cheap financing.

In Japan, new car sales surged in March from a low last year following the earthquake and tsunami, while global sales for South Korea's Hyundai Motor Co also grew during the month as brisk overseas sales made up for a sharp drop at home.

PROJECTIONS CUT

CAAM did not revise its full-year forecast of 8 percent growth for China's vehicle market but left open the possibility that the full-year growth rate could turn negative.

"Given the situation in the first quarter, I think chances that we will see growth for the full year are bigger than a decline," Dong Yang, CAAM's secretary general, said at a briefing on Wednesday.

Industry consultancy LMC Automotive Co cut its forecast for Chinese passenger car sales growth to 9 percent from 10.9 percent after Wen announced a lower economic growth target for the year.

"Our previous forecast was based on GDP growth of 8.5 percent. A one percentage point change is going to have a fairly big impact on car sales," said John Zeng, Asia Pacific chief at LMC.

"For the overall vehicle market, the growth rate this year would certainly be lower than 9 percent as commercial vehicles have been declining since 2011."

LMC has excluded mini-vans in its passenger car sales forecast of 2012. It if included mini-vans, the projected growth rate would be much lower since mini-vehicle sales showed an annual decline of 8.5 percent in the first quarter.

Still, some industry executives, including Xu Ping, chairman of Dongfeng Motor Group Co, remain sanguine about the outlook, banking on better sales in lower-tier cities and demand for new models.

Xu expected China's vehicle market to rise 8 percent in 2012. Dongfeng, a Chinese partner of Nissan Motor and Honda Motor, would grow 15 percent, thanks to the planned launch of nine new cars within the year, he said.

Chen Hong, president of SAIC Motor Corp, was also confident that the top Chinese automaker could continue to outpace what he projected to be a 7-8 percent gain in the market.

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