Sales loosing steam as fuel prices rise

Demand in February fell 34 percent, partly due to Spring Festival holidays

Vehicle sales in China lost steam in February following a strong January, but they continue to perform better than the same period last year.

Sales of light vehicles totaled 1.2 million units, up 6 percent from the same period last year. Passenger vehicle sales rose 9 percent to 814,000 units, while light commercial vehicle sales grew nearly 1 percent to 396,000 units.

On a seasonally adjusted basis, sales declined 19 percent to 17.3 million units, down from a record high of 21.4 million units in January last year. The five-month average through February hit 19.3 million units, which is fairly strong and close to our 2011 forecast.

February sales plunged 34 percent from January. Such declines are usual after the Chinese New Year, but it seems worse this year. February 2010 sales dropped just 28 percent.

Demand traditionally rises before the festival, cools while it's underway and then gradually rises afterward.

As well, the surge in January sales and production could be attributed to forward volume from February as most automakers stopped production a week before the New Year.

Rising oil price

Another factor affecting February sales was rising global oil prices in the wake spreading unrest in the Middle East. Domestic prices at the pump rose 4 percent in February.

The possibility of more price increases is further easing sales into the slow lane.

Rising fuel prices will hit large displacement vehicles the hardest, such as those in the mid-sized car segment, where sales fell 6 percent year on year in February.

Except for some of the latest models - the Skoda Superb and Buick's Regal and Lacrosse - sales of most key models took a double-digit dive.