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TheStreet Open House

Car Sales Steady Despite China's Ownership Restrictions

Stocks in this article: F GM TM NSANY HMC

TAIPEI ( TheStreet) -- After more than a decade of pushing vehicle owners to step on it, governments in China are now telling them to slow down.

China's auto industry still can't find the brake pedal but may finally let up on the gas, having a limited impact through year's end on foreign vehicle brands popular among Chinese motorists.

Here's what's going on: Eight Chinese cities will join an existing four in limiting purchases of private vehicles as a pollution control measure, the country's state-run media say, citing the China Association of Automobile Manufacturers.

That increase in urban private ownership restrictions might cut vehicle sales by 400,000, or 2% of total domestic sales, the China Daily newspaper says, citing association Deputy Secretary General Shi Jianhua.

But then Zacks Investment Research cites the same association as saying nationwide auto sales went up 11.2% last month, more than 9.8% in May.

Sales of cars, still powered by China's go-buy stimulus package in 2009, increased in June because prices came down. Lower prices "partially offset" vehicle purchase deterrents such as a credit shortage, the slowing Chinese economy and the very same restrictions on vehicle ownership, Zacks said in a commentary for Nasdaq.com on July 11.

Limited access to credit may have motivated car sellers to give discounts to clear stock and meet sales quotas, one industry analyst in Asia suggested.

American and Japanese brands have fared particularly well this year to date. Sales of American vehicles rose 12.7% to 1.8 million units in the first half of 2013 while vehicles made under the Japanese flag sold 16.5% higher, at 2.3 million units.

Ford (F), General Motors (GM), Toyota (TM), Honda (HMC) and Nissan (NSANY) led that trend, Zacks says.

China encouraged its people to buy cars from the 1990s as proof of national wealth to the outside world. But since then it has faced mounting air pollution as well as legendary traffic gridlock (waiting four or five turns at a single signal) and a scramble for fuel sources from abroad.

Now the question is whether the widening net of vehicle ownership restrictions has caught up with these companies, and if so to what degree. It's hard to make a clear case either way yet. To look at it one way, Chinese cities have gotten more serious about controlling pollution and traffic congestion amid citizen complaints that increasingly tarnish the image of their leaders.

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