China's car sales further dented by stock market bust as buyers pull out of purchases

Chinese automakers are in a "lose-lose" situation after a stock market boom that diverted funds from purchases turned into a bust, further denting demand in the world's largest car market.

An increasing number of Chinese car buyers are cancelling their purchases and risking forfeiting their down payments after a stock market rout erased about US$3.2 trillion in value, according to Cui Dongshu, secretary general of China's Passenger Car Association.

"The plunging stock market is a meat grinder, shredding money meant for buying cars," Cui said.

Auto sales fell last month for the first time in more than two years, according to figures released by the group on Wednesday.

The rapid turn in the stock market - which saw the Shanghai Composite Index dive more than 30 per cent since June 12 after a 150 per cent surge in the preceding 12 months - is dealing another blow to auto demand already slowing with the economy.

Dealers who reported softening demand as prospective buyers postponed their purchases during the rally to punt on equities now face the prospect of lost sales in the ensuing plunge.

"The stock market is going down too fast," Barclays analyst Song Yang said. "If you're losing so much money in the stock market, that dampens your desire to buy a car."

Carmakers including Volkswagen and General Motors have cut prices to defend market share as demand slows and domestic rivals lure increasingly value-conscious customers with cheaper sport-utility vehicles.

But that has done little to spur demand, with a survey by MNI Indicators showing the proportion of consumers who planned to buy a car shrinking last month.

Inventory was at levels that indicated low market demand for nine consecutive months, with June's reading at the second highest mark for the year, data from the China Automobile Dealers Association showed.

Weak car demand was not expected to recover before September, said Cui, who added it was unlikely the government would roll out policy incentives to spur vehicle demand.

An estimated US$2.6 trillion of shares, or about 40 per cent of the market's capitalisation, is now locked through trading suspensions by companies on the two mainland exchanges.

"A lot of money will remain in the stock market, especially if people are losing money, as they won't withdraw from the market immediately but will wait," LMC Automotive analyst Zhu Bin said. "Chinese consumers tend to buy big-ticket items around the year end or at the start of the year, so that would be the time when they'll need the money."