China's car sales have fallen for 8 straight months. It may get worse before it gets better

  • Chinese auto sales fell nearly 14 percent in February — marking the eighth straight month of year-on-year declines.
  • China is the world's largest vehicle market and auto sales is a key barometer of the health of consumer sentiment and the broader economy.
  • Government policy measures announced last week, including tax cuts, could help the sector, but consumers will likely continue delaying purchases until the stimulus timing becomes clearer, U.S. bank Citi says.
New cars lined up at a parking lot on Sept. 6, 2017 in Shenyang, Liaoning Province of China.
VCG | Getty Images
New cars lined up at a parking lot on Sept. 6, 2017 in Shenyang, Liaoning Province of China.

Chinese auto sales declined almost 14 percent in February, an industry group announced Monday, marking the eighth straight month of year-on-year decline in the world's biggest vehicle market.

Auto demand in China surged for years as the country experienced decades of economic development that created rising consumer class. But annual sales fell last year for the first time in about two decades as growth in the world's second-largest economy slowed and uncertainty due to the trade war with the United States damaged sentiment.

As part of efforts to boost its slowing economy, China announced last week a set of measures to stimulate growth. Those included tax cuts that could help boost demand for autos, but the effect is likely to take time, analysts said.

Citi said in a Monday note that the timing of the planned tax cuts to boost consumer spending remains unclear and thus "will cause buyers to delay car purchases until after the tax is implemented."

Autos sales are an important barometer of the health of Chinese consumer spending and thus the broader economy, and they're also a key factor for foreign automakers who have hoped China's demand can help support the global auto sector.

'Guide certain sectors'

The China Association of Automobile Manufacturers said in a release on its website that sales declined by 1.48 million vehicles in February from the same month in 2018, marking a drop of 13.8 percent.

"The trend experienced last year has continued into this year, and the economic situation has also been weak," Shi Jianhua the association's deputy secretary general told reporters at a press conference in Beijing, according to Reuters.

"This has dragged down consumption," he added. "Consumers are also waiting for more government policies."

Sean Taylor, chief investment officer for Asia Pacific and head of emerging markets at Deutsche Bank Group's DWS asset management arm, said he expects Chinese authorities to take further steps to boost autos spending if a resolution to the trade war can be achieved.

"The government will probably use policy to guide certain sectors and the autos is the easiest area to do," Taylor told CNBC on Tuesday. He added that he'd expect Beijing would "front load" that stimulus by quickly putting out some sort of package that could include ultra-low financing for auto loans.

"That can kick in really, really quickly," he added, though he stressed it won't happen until the uncertainty of the tariff conflict with the U.S. is resolved.

"Sentiment is so important," he said. "We really have had terrible sentiment, both on the government level, a corporate level and investor level in China."