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Automakers stall on China's slowdown

Monday, July 20, 2015 - 02:07

VW and GM's performance in China is stuttering on a slowdown in a market that has been their biggest profit engine for years. And, as Hayley Platt reports, other carmakers are losing momentum there too.

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A slowing Chinese economy - easing the brakes on for foreign car markers. VW earns more than half of its net profit and 71 percent of its cash flow from China. Last year GM received 40 percent of its net income and 20-30 percent of its operating cash flow from there. But China's economy is slowing, stalling demand for luxury cars. Barclays has already downgraded GM's stock to "equal weight" from "overweight". Still National Australia's Bank's Nick Parsons is a bit more optimistic. SOUNDBITE (English) NICK PARSONS, NATIONAL AUSTRALIA BANK, SAYING: "Things are not actually getting worse in China, although whether or not you believe official growth forecasts that the economy expanded at a 7 per cent pace, and by the way we don't. But the economy is still expanding. The pace of increase is going to be slower than it was and there's no doubt that the falls in value of the stock market are an excuse for customers and businesses to defer purchases." China is the world's biggest automarket. And its economy IS still growing albeit a little slower. But it does have problems which the government are trying to sort out. Not least the recent troubles on the Shanghai stock market. Mike Ingram is from BGC. SOUNDBITE (English) MIKE INGRAM, MARKET STRATEGIST, BGC PARTNERS, SAYING: "You have official intervention in the form of interest rate cuts, reserve rate requirement cuts, easier credit terms from brokers, even dragooning the brokers themselves to buy stocks." Volkswagen in particular is vulnerable to a shift in demand for more frugal cars as Beijing cracks down on displays of wealth. And first-time car buyers in second-tier cities are favouring cheaper local models. That's hitting luxury brands like BMW, Mercedes-Benz and Daimler. And Audi: it is reviewing its 2015 Chinese sales target in the latest sign that the downturn is more severe than expected. And the China Association of Automobile Manufacturers cut its 2015 vehicle sales growth forecast to 3 percent from 7 percent.

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Automakers stall on China's slowdown

Monday, July 20, 2015 - 02:07