Sales loosing steam as fuel prices rise

Sales of sub-compact cars and compact cars also weakened with the overall market slowdown, although they still registered a marginal year-on-year growth of 1 percent and 6 percent respectively, but that is thought to be largely due to the tax subsidiary which is about to come to an end.

Yet we are still optimistic about the outlook for the two segments given the rising fuel prices.

After double-digit growth for 20 consecutive months, the luxury car segment found its sales slowing sharply in February to a mere 6 percent.

While most brands still performed well, the segment leader, Audi, posted a sales decline in excess of 50 percent due to government belt-tightening across the country and restrictions on the number of cars in the capital Beijing.

Vehicle prices remained stable in February with exceptionally strong retail sales in December and January greatly reducing dealer inventories.

But several manufacturers including BYD have started to cut prices and we believe more companies will join the trend in the next few months.

Whatever the short-term outlook, our forecast for this year and after remains unchanged as we believe China's economy will continue to develop and the strong demand in the inland cities will continue.

We expect the natural disasters that hit Japan to have a short-term negative effect on the Japanese carmakers in China.

While we don't expect it to impact most locally produced models, some such as the Corolla and Land Cruiser Prado that import components from Japan could be adversely affected.

Models imported directly from Japan, including most variants of Lexus, Mazda and Mitsubishi, will most certainly have disrupted distribution.