China’s Strong July Auto Sales Fuel Hopes for Growth - The Wall Street Journal

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Visitors at an auto expo in Nanjing, China, last month.
Photo: str/Agence France-Presse/Getty Images

Updated Aug. 11, 2020 7:31 am ET

SHANGHAI—Chinese consumers flocked back to auto dealerships in July, boosting car makers’ hopes of returning to growth in the second half of the year and signaling a broader rebound in the world’s second-largest economy.

Retail passenger-car sales increased 7.7% in July from a year earlier, to 1.6 million units, the China Passenger Car Association said Tuesday, marking the strongest month of sales growth by percentage in more than two years.

While auto makers’ sales to dealerships had bounced back in the second quarter of the year, rising 10.4% year over year, sales to individual customers had remained weak, declining 3.4% in the April-to-June period compared with a year earlier as consumers only slowly began to spend again after the coronavirus brought China to a standstill in the first three months of the year.

The Chinese auto market now looks to be picking up, thanks to a combination of government incentives and bargain prices from dealerships eager to move vehicles off the lot. Those factors have helped bring in consumers even while lingering fears over fresh outbreaks and the economy’s uncertain longer-term prospects remain.

While aggressive deals are enticing potential buyers, they are also cutting deep into profit margins. “Car dealers are facing increasingly intense pressure to cut prices in the second half in order to meet their yearly targets,” the state-backed China Automobile Dealers Association said last week, based on a survey of auto dealerships nationwide.

For now, the bargains are also failing to offset the buildup in inventory. In July, the growth in wholesale sales continued to outstrip that of retail sales, rising 16.4% from a year earlier, according to the China Association of Automobile Manufacturers. The government-backed body warned Tuesday of excessive inventory levels as dealers restock vehicles for which there is so far insufficient demand.