THE auto industry cannot avoid being affected by the global financial crisis. After the collapse of a slew of financial institutions, job cuts and production stoppages have become a major theme for western car makers over the past few weeks.

In China, the demand for cars has declined alarmingly since August, and business conditions in China are raising concerns for the future.

But industrial analysts say the worsening international financial turmoil will not have a major effect on China's automotive industry. The nation's economic fundamentals remain healthy and will help to sustain the growth of auto consumption in the current low market penetration.

In the United States, the slowing economy and dwindling auto sales have prompted the Big Three car makers - General Motors Corp, Ford Motor Co and Chrysler LLC - to rethink their financing.

GM has announced plans to cut 9,000 US workers and produce 40,000 fewer vehicles while Ford was also forced to cut car loans because of the fall of Lehman Brothers.

The latest news is that Chrysler and GM are in talks for a possible merger that may spark a new round of reshuffling for the global auto market.

Sales of Japanese car makers were also hit. Toyota has reported sales tumbled 32.3 percent to 144,000 units on the US market last month, the lowest level since July 1987.

The same thing happened in China in August, when sales showed their first year-on-year decline at 6 percent since February 2005.

This continued in September as domestic auto makers sold 1.4 percent less vehicles as the global financial crisis deepened from US to European markets.

Auto makers like Chang'an Ford Mazda Automobile followed the cooling demand and cut contracts with temporary labor. Toyota also reduced production in its Chinese plant in Guangdong Province.






'A decline in asset values - in real estate and the stock market - is hurting consumer confidence and buyers' willingness to purchase big ticket items,' says a report from Automotive Resources Asia, a consulting affiliate to JD Power.

The report also hinted that the economic prosperity would be further damaged as China's competitiveness in exports declines because of a strengthening yuan and the close economic ties built with the US could threaten to impede the progress of China's economy.

'We believe there is downside risk to our 2008 forecast of 5.95 million passenger vehicles and 2.95 million light commercial vehicles, and for an up-market in 2009,' it said.

Compared to foreign car makers, home-grown car makers face more challenges as the financial crisis leads to less demand in overseas markets.

A range of price cuts is now on the horizon as part of car makers' efforts to move inventory and boost sales in the fourth quarter.

'The global economic setback will definitely impact the Chinese market, maybe over a relative long period,' said Rao Da, secretary general of China Passenger Car Association, who estimated year-on-year growth for auto sales will slow to 5 percent this year.

'But China's banks are less affected and the fundamentals of China's economy are much better than developed countries. Global auto giants will not give up their expansion in China's auto industry,' he said.

China's policy makers reversed the two-year trend of tightening monetary policy last week by lowering interest rates and loosening lending requirements.

The nation is also encouraging internal consumption to offset the slowdown in exports and direct investment.

All the moves were aimed at stimulating the economy and to protect the nation from the global financial crisis. Rao's comment is echoed by other analysts.






'In the face of the global economic recession, the auto industry is experiencing a chilly winter,' Chen Xiongliang, the executive vice director of Auto Biz Review, commented in an online interview.

'But in the long run, more and more vehicles will be sold in China because the market penetration in China still lags behind the mature markets.'

China has about 40 cars for every 1,000 people. This compares to 700 for the US and 120 for the global average.

'It will be a good opportunity to review the development during the difficulties as a crisis always lies behind a glory,' said Wu Kaicheng, director of Beijing-based investment consultants People & People.

Auto makers are showing their confidence in the long-term outlook for China's auto industry.

Volkswagen said it still holds a one-million-units sales target in China for this year despite the growth of three-quarters sales slowing to 13 percent compared to the 23 percent for the first-half of this year.

Bosch Group, the world's auto parts suppliers reiterated it will continue its 850-billion-euro (US$1.15 trillion) investment in China over the next three years, banking on demand for greener and more fuel-efficient solutions.