Trump's trade war with China just ended one car manufacturer's incredible 46-month streak

  • Trump's trade war with China just helped end one of the auto industry's greatest streaks.

  • Sales of Geely cars fell in October, ending a hot run of 46 consecutive months of year-over-year growth, according to a report from The Wall Street Journal.

  • Geely is not alone. Car sales in China have fallen for the past four months year-over-year, and are on course to notch up an annual decline for the first time in nearly three decades, according to The Journal.

  • But its not the end of the road, because much of China's car-making supply chain is pretty localized; what's more China mainly produces vehicles geared for Chinese consumption.

Trump's trade war with China just helped close out one of the auto industry's hottest streaks.

Don't know the auto brand Geely? It's a bustling outfit out of Zhejiang province and the company Zhejiang Geely Holding Group that owns brands including Volvo.

Around 2014, sales went into hyperdrive for Geely. By 2017, sales tripled to almost 1.25 million, The Wall Street Journal reported, making Geely the No. 2 brand in China, behind the ubiquitous Volkswagen AG’s VW brand.

Pretty much every taxi in China — and there are quite a few of them — are VWs. And Volkswagen can lay claim to 6% market share, according to auto intelligence company LMC Automotive.

But that was then.

Sales of Geely cars fell in October, ending 46 consecutive months of year-over-year growth, according to The Journal.

As the holidays loom, trade tensions are still testy between the US and China. The two countries have so far imposed tariffs covering roughly $360 billion of merchandise trade between them.

And that has implications for every major industry and the players in it.

Today, Geely stands in the shade of its first-ever 10% year-over-year sales decline, recorded last month.

It's not the only auto company suffering. Car sales in China have fallen for the past four months year-over-year, and are on course to notch up an annual decline for the first time in nearly three decades, according to The Journal.

Following China's decade-long love-affair with four wheels, big name auto producers are in unknown territory.

Sales of Ford's passenger cars in China have collapsed by nearly half (45%) in just the first nine months of the year.

The people who bought Jeep to China, Fiat Chrysler have crashed into a wall, down 35%, and General Motors' Buick sales were down 9%, according to LMC Automotive.

In a sign of China's yawning wealth gap, the auto dream has for the first time begun to spin away from China's aspirational new middle class. But at the same time, the number plate-less black metal sharks with tinted one-way mirrors that glide through second-tier cities like Chongqing and Chengdu are still everywhere.

Things might be tough on the other side of the street, but China's luxury-car market is rolling along with nary a speed bump.

Cadillac sales are up 30% in the first nine months of 2018.

Over the same period, BMW, Audi, and Mercedes-Benz are all driving consistently ahead at 10% to 13%.

But its not curtains for Geely yet, although investors have fretted as its Hong Kong-listed shares shed about 50% since this time last year.

But so have a collection of top-shelf, Chinese-listed names, as the country grapples with the new reality of an uncertain economy. The Shanghai Composite is down 24% in the past 12 months.

The Shanghai-headquartered carmakers' sales were defiant in the interim, up 27% year-over-year in the January to September period. October is where the winning streak came crunching to a halt.

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'Generally weaker demand'

A Geely spokesman told The Journal of "generally weaker demand for vehicles ... across different regions."

The trade war has surprised and deflated Chinese consumers weened on hearty, consistently good economic news. For a very long time, money has been pretty easy to come by, and if banks stop lending as banks have done — regardless of instructions not to — then the rich pickings of a steamy shadow lending system have always been close by for the intrepid.

Those deep pools have suddenly looked a lot drier. China's shonky shadow banking has been making international headlines which is always the forebearer of bad — usually official — attention. Following the literal explosion in non-bank lending, micro-lending to peer-to-peer, officials have finally woken up to the dangers and clamped down hard on this critical informal line of credit for everyday Chinese consumers.

Nevertheless, according to Macquarie Group, there is ample room for Chinese auto sales to continue their happy, heavenward trajectory, rising effortlessly from nearly 29 million last year to between 30 million and 35 million in the coming years.

But of course, there is still a trade war to consider

Chinese finished vehicles exported into the US represented only 0.3% of China’s total exports last year, worth $7.2 billion, according to America's International Trade Commission.

However, the US is by far the largest destination of Chinese auto parts exports, so any tinkering with China's access to that market will be very tough for China-based exporters to swallow.

According to the Economist Intelligence Unit, China accounted for almost 20% of US finished vehicle exports by value in 2017, that's about $10.3 billion worth of cars.

Chinese tariffs on US auto imports could exert downward pressure on certain automakers that export their finished product from the US into China, including BMW and Mercedes-Benz (both German and very popular).

Most of these shipments are in the luxury sector, however, and the big-name US automakers retailing to China’s mass market, like GM and Ford, produce their China units overwhelmingly via their local joint ventures in China.

BMW and Mercedes-Benz, already have operations in nearby Thailand, and in the case of a deterioration in US-China dispute, these companies are likely to ramp up their local output to support shipments to China, the EIU suggests.

US auto parts exports are likewise less exposed to the US-China trade dispute, as they ship mostly to Canada or Mexico; shipments to China accounted for only 5% of the total in 2017, the EIU added.

Other trade concerns

For Asian producers in the auto sector more generally, there are bigger concerns than the US-China
trade war.

These are the existing and onerous tariffs on steel and aluminium imposed by the US in early 2018.

Also on the horizon is the Section 232 report from the US Department of Commerce, which could very well slap tariffs on all vehicles and auto parts exported to the US, based on national security concerns.

Geely, meanwhile, can relax for a while, despite the sudden end of its golden run, it holds a substantial 9.69% share of parent of Mercedes-Benz, Daimler AG

Volvo sales, meanwhile, were up one-third in China year-over-year in the January-to-September period.

Geely has a whole bunch of new models in its garage outside Shanghai and that should be more than enough to get it back in the winners circle.

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