TM Toyota Motor Corporation

SHANGHAI—China's car sales in 2015 reached a new high but growth slowed further, as a cooling domestic economy took a toll on demand in the world's largest auto market.

China sold 21.1 million passenger cars—sedans, sport-utility-vehicles and minivans—last year, up 7.3% from a year earlier, government-backed China Association of Automobile Manufacturers said Tuesday. The growth was compared with a 10% rise in 2014 and a 16% gain in 2013.

Growth could have been lower if the government had not lent a hand. China's car sales fell into a recession in the summer as a worse-than-expected economic downturn and plummeting stock prices scared off buyers. However, Beijing's halving of the 10% purchase tax on small-engine vehicles in October reinvigorated sales.

In December, China's car sales rose 18% from a year earlier, said the industry group, following a 24% rise in November and a 13% gain in October. Nearly 70% of China's new-car sales qualify for the tax break.

Xie Wei, a dealer in the central Henan province for Chevrolet and Hyundai, said he is cautious about this year even as foot traffic has recovered after the tax break. "Demand from first-time buyers is not strong as expected. I feel people are very worried about their jobs and income," said Mr. Xie.

Despite a series of stimulus policies including successive interest-rate cuts and a devaluation of the local currency, China's economy is still heading to the lowest expansion rate in a quarter of century.

"We are convinced the growth seen in recent months simply cannot last," said Robin Zhu, a senior analyst at research firm Sanford C. Bernstein. He cited a large buildup of inventory at dealerships in recent months, saying that it might pull back wholesale delivery growth.

A recent survey by the China Automobile Dealer Association of more than 22,000 dealers showed that their average inventory level was 1.4 months of sales in November, up from 1.3 months in October. In China, analysts regard 1.5 as the "alert level" at which auto dealers should begin to be concerned about high inventory.

Also, car prices, a key measure of demand, remain depressed. According to a study by Ways Consulting, a Guangzhou-based consulting firm focused on China's automotive industry, discounts widened to 11.5% on average in the fourth quarter from 11% in the previous quarter.

Major car makers reported slower growth for last year. General Motors Co. posted a 5.2% rise in its China sales, down from 12% in 2014. Over the same period, Toyota Motor Corp.'s gain in China fell to 8.7% from 12.5%, and Ford Motor Co.'s shrank to only 3% from 19%.

Foreign car makers have been the biggest beneficiaries of China's economic boom. They built more plants in China than anywhere else in the past decade, capitalizing on Chinese consumers' taste for upscale products. Still, they had to cut prices and curtail production in China in the middle of last year when sales fell short of expectations.

Even though the tax break has reaccelerated growth, foreign companies are circumspect when looking into the new year. GM and Ford said they anticipated continued growth in 2016, without providing a target. Toyota said it is aiming to sell just 2.7% more cars in China this year compared with last year.

Chinese domestic car makers held a bright spot for 2015. Data show that sales of Chinese domestic car brands rose 15% from a year earlier to 8.7 million vehicles, beating the overall industry's growth. The gains mostly came from their aggressive launches of budget SUVs, said analysts.

Compared with foreign players, Chinese homegrown car makers are more optimistic as their launch sprees will continue. Great Wall Motor Co., a SUV maker, aims to sell 11% more cars this year compared with the year-earlier period, and Geely Automobile Holdings Ltd., whose parent owns Swedish brand Volvo Car, targets an 18% year-over-year rise.

The auto-manufacturers' group projected China's passenger car sales to grow 7.8% this year to 22.76 million vehicles, thanks to the tax break which will expire at the end of December. It forecast sales of total motor vehicles, including both passenger and commercial vehicles, will rise to 26 million units from 24.6 million units last year.

--Rose Yu

(END) Dow Jones Newswires

January 12, 2016 03:55 ET (08:55 GMT)

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