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Vehicle Production, Sales Cooling

China turned out 215,100 passenger cars in May, 24,400 less than in the preceding month, according to figures released by the National Bureau of Statistics on Tuesday.

Growing car inventories since the start of this year resulted in a decrease of more than 10 percent in sedan production. More than 80,000 units were added to inventories in the first quarter of this year, and 23,000 more cars went to the storehouses in April.

But May car production jumped 30.5 percent year-on-year. During the January-May period, slightly more than 1 million passenger cars were produced, a rise of 37.6 percent year-on-year.

"Conditions will be better in the second half of this year and our forecasts on vehicle output for the full year could be exceeded," said Zhu Yiping, spokeswoman for the China Association of Automobile Manufacturers (CAAM).

CAAM predicted at the beginning of this year that the full-year vehicle output would reach 5.5 to 5.6 million units, up from 4.4 million units last year.

Total vehicle output in China increased 28.1 percent year-on-year to 2.3 million units during the first five months of this year.

Meanwhile, vehicle sales continued to cool in May from the previous month.

Total sales of domestically made vehicles dropped 20.4 percent month-on-month to 396,200 units, according to CAAM.

This is the second consecutive monthly slowdown. Sales declined 8.2 percent in April from March.

Sales of trucks tumbled 25.2 percent to 115,000 units in May, the biggest drop among the three main categories of vehicles.

Sales of passenger cars and buses amounted to 177,700 units and 103,500 units last month, down 19.3 percent and 16.6 percent from April, respectively.

"The fall was mainly generated by the week-long Labor Day holiday, the government's tightening economic measures and price wars in the domestic car market," said Zhu. "Government controls on fixed asset investment have affected truck sales heavily."

Price wars between producers and government policies, such as controls on car loans by banks, are the two biggest factors curbing car sales, said Jia Xinguang, chief analyst with the China National Automotive Industry Consulting and Development Corp. "Price cuts are so frequent that many customers expect further declines and have postponed buying cars."

Earlier this month, Nissan's joint venture with Dongfeng Motor Corp. cut prices of Bluebird and Sunny sedans by up to 20,000 yuan (US$2,410).

General Motors' joint venture in Shanghai last month slashed prices of the Buick Regal and Excelle sedans by 20,000 to 40,000 yuan (US$2,410 to 4,820).

"Market conditions will possibly be tougher at the end of this year as a result of China's removal of quotas and further tariff cuts on auto imports next year," Jia said.

The nation will slash tariffs to 30 percent next year from 34.2 to 37.6 percent this year, in line with its commitments to the World Trade Organization. The tariffs will drop to 25 percent in the middle of 2006.

"We cannot expect the domestic car market to continue to grow at the explosive rate seen in the past two years," said Miao Wei, president of Dongfeng. "Customers have more choices [with more new product launches]. Itss a pressing task for manufacturers to study their demands to make them faithful to our brands."

However, CAAM's Zhu said vehicle sales are expected to rebound from June.

Total sales of China-made vehicles reached 2.2 million units between January and May, up 27.6 percent from a year ago.

Passenger car sales grew y 37.7 percent year-on-year to 964,700 units during the first five months of this year.

First Automotive Works Corp. (FAW), China's top automaker, sold 378,900 vehicles during the period, up 14.5 percent.

Combined sales of the nation's top five automakers--FAW, Dongfeng, Shanghai Automotive Industry Corp., Chang'an Motor Corp. and Beijing Automotive Industry Holdings Corp.-- reached 1.4 million units during the period, accounting for 65.2 percent of total vehicle sales.

(Xinhua News Agency, China Daily June 16, 2004)

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