GM, Honda See Strong Growth in China in July

General Motors GM and Honda Motor Corp. HMC both saw Chinese sales surge in July. The rise in car sales can be attributed in large part to interest rate cuts targeted at consumers, lowering borrowing rates and thus making large expenditures less of a burden to consumers.

GM said Monday it and its joint ventures sold 199,503 vehicles in China during the month, up 15% from a year earlier and a monthly record for the company. Strong demand for minivans was responsible for a large part of the jump in GM's sales. Sales of minivans made by SAIC-GM-Wuling Automobile Co., a joint venture between GM, SAIC Motor Corp., and Liuzhou Wuling Motors Co., got a boost from government policies aimed at supporting car purchases in rural areas.

Honda also saw favorable sales in China in July, as it sold 52,045 vehicles in China through its two joint ventures, more than double its tally in the same month last year. Honda's jump in sales can be largely explained by a reversion back to normal sales volume following the Japanese earthquake and tsunami last year that sent sales volumes and production lower.

The China Association of Automotive Manufacturers is expected to announce total domestic vehicle sales sometime this week, however data in China does not always come out as scheduled. Total sales in China rose 2.9 percent in the first six months of 2012 as compared to the same period the year prior. That compares with ano 3.4% year-on-year gain in the first half of 2011 and double-digit growth in previous years. The slowing growth in auto sales mirrors the slowdown in GDP seen since the large fiscal stimulus of 2008-2009 wore off.

Strong auto sales in China could bode well for global economic growth and the shift of the Chinese economy to a consumption one. Chinese officials have accepted that an export-driven boom cannot last forever and that the inevitable result of rapid economic expansion would have to be a domestic, consumer focused economy. By cutting rates on consumer lending, China is hoping to spur an increase in consumer credit and also consumption. The data from GM and Honda seem to support this message from the government.