Impact felt from Japan earthquake, fuel price rise and lapsed subsidies

China's vehicle market has been racing ahead and creating history over the past two years, but the juggernaut stalled in April.

Though 10 percent growth in the first quarter still looked good, the 1.46 million light vehicles sold in April represented just 2 percent growth over a year earlier.

Passenger vehicle demand in April improved 7 percent year on year to 1 million units, but it was light commercial vehicles that took the big hit - a decline of 9 percent over the same period last year to 442,000 units.

Production of light vehicles even turned negative to minus 1 percent following 26 consecutive months of growth.

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The earthquake in Japan and subsequent shortage of imported parts hindered production. Some manufacturers were able to maintain output in March but by April had to cut production.

Japanese parts suppliers are not expected to resume production any time soon.

Sales of Toyota and Honda vehicles dropped more than 20 percent year on year in April. Nissan's total sales were the same as they were a year ago, but its production was down 36 percent from April 2010. Mazda and Ford also suffered output cuts as they rely on imported Japanese parts.

In addition to impacts from the earthquake, rising fuel prices due to unrest in the Middle East and a weakening US dollar also raised concerns that resulted in slower spending.

The uncertainty was reflected in sluggish demand for midsized cars, MPVs and light trucks, segments more sensitive to fuel prices.

Without the subsidies that supported demand over the past two years, sales of minibuses and mini-trucks continued to shrink.

Some car models were in short supply, yet average vehicle prices continued to fall in April, averaging a 0.2 percent decrease compared to March and 3.5 percent lower than a year ago.

Price cuts spread throughout the country due to high inventories at dealers, which had more than 2.5 months supply on average.

Poor sales numbers in April may well drive automakers such as Shanghai GM, BYD and SAIC to cut prices and help take pressure off their dealers.

Analysts are wondering whether China, the world's biggest car market, is set for slower growth ahead. The fast expansion over the previous two years may have pulled demand forward.

JD Power and Associates recently revised its forecast for 2011 downward from 11 percent to 7 percent, yet remains optimistic about the market.

Massive road construction, rapid urbanization with more than 10 million people moving to cities every year and rising incomes are all foundations for growth in vehicle demand over the next decade.

The author is a senior analyst at JD Power and Associates