China’s domestic auto market faces a historic slump

Li Ke, a veteran salesman with 26 years of experience, describes the current environment as the slowest he has ever witnessed outside of the pandemic. Dealerships that once processed constant daily transactions are now closing only two or three deals a week. This stagnation stems from a fragile job market and plummeting property values, which have forced households to prioritize savings over big-ticket purchases. Government subsidies, previously a reliable engine for growth, have also been scaled back, leaving the sector without its usual support.

The decline extends to the new-energy vehicle segment, which had served as a rare growth engine until recently. Retail sales for all passenger vehicles are projected to hit 18.5 million units for 2026, a 22% drop that places the industry below pandemic-era lows. Amid this landscape, automotive manufacturing profits plummeted 22.8% during the first three quarters of the year. Faced with narrowing margins and a consumer base that refuses to engage in impulse buying, many dealerships are abandoning prime real estate to cut costs, while manufacturers intensify their focus on exports to escape the domestic price wars.