China's monthly vehicle sales post first back-to-back drop since 2015

BEIJING (Reuters) - Chinese auto sales slipped in May from a year ago, registering two straight months of declines for the first time since 2015, with the automakers’ association saying the weakness may drag on as the rollback of a tax incentive continues to hurt.

File Photo - New cars are seen at a parking lot in Shenyang, Liaoning province, China, January 16, 2017. REUTERS/Stringer

The world’s biggest auto market got a shot in the arm in 2016, growing at its fastest pace in three years, after Beijing halved the purchase tax on smaller-engined vehicles. But buyers have shied away since taxes climbed to 7.5 percent, from 5 percent, at the start of this year.

Auto sales in China fell 0.1 percent in May from a year ago to 2.1 million vehicles, China Association of Automobile Manufacturers (CAAM) said on Monday. In April, sales recorded their steepest fall in 20 months.

The current downturn in China’s auto market could extend through July or August, said Xu Haidong, a CAAM spokesman.

“Last year was just too strong and now the policy impact is fading away,” said Yale Zhang, managing director of Shanghai-based consultancy Automotive Foresight. “The growth (last year) overdrew some of the demand.”

In the first five months of 2017, sales grew 3.7 percent from year-ago levels, CAAM said at a briefing in Beijing. This was smaller than the 7 percent growth seen over January-May 2016 and trails CAAM’s forecast for 5 percent growth this year.

China’s auto market recorded a 13.7 percent rise in sales last year, helped by the tax incentive. The purchase tax on vehicles with engines of 1.6 litres or below will rise to the normal 10 percent next year.

The latest CAAM data shows sedan sales in China fell 9.3 percent year-on-year in May, with sport-utility vehicles proving to be the lone bright spot for passenger vehicles, growing by 13.5 percent as Chinese continue to trade up to larger vehicles.

Foreign brands that are strong in the small sedan segment have seen sales slow this year. General Motors Co GM.N, Ford Motor Co F.N and Volkswagen AG VOWG_p.DE all recorded declining sales in the first five months of the year.

Meanwhile, commercial vehicles posted rapid growth, led by lorry sales that grew 18.3 percent, indicating the strength of the overall economy.

Sales of electric and plug-in hybrid vehicles flipped to a year-to-date rise, versus a drop over the first four months, as China accelerated subsidy approvals after a slow start to the year.

Reporting by Stella Qiu and Jake Spring; Editing by Himani Sarkar