The smiles on the faces of auto executives aren't quite as wide when they're reporting on their companies' prospects for China's car market and the impact on their bottom line.

A cooling economy and a stock market collapse in China can have that effect.

The slowdown of vehicle buying by Chinese consumers, as well as rising discounts, dented the bottom line of major automakers, including Toyota Motor Corp. (TM) - Get Report and BMW AG, in the second quarter. While China remains the world's largest car market and a moneymaker, the recent numbers haven't been quite as dazzling. Worries about further softening and overcapacity are creeping into forecasts.

Last week, Bob Shanks, chief financial officer of Ford Motor Co. (F) - Get Report, said the automaker is forecasting a possible decline in the number of vehicles sold in China this year, the first annual drop in 17 years. Ford, General Motors Co. (GM) - Get Report , Volkswagen AG (VLKAY) , Toyota and BMW have invested billions in plants and joint ventures with Chinese automakers.

"We've clearly hit an inflection point in sales," said James Chao, China-based analyst with IHS Automotive. "What we're seeing is a huge change over the last couple of years." The China Association of Automobile Manufacturers last month reported a 2.3% drop in vehicle sales for June, the first year-over-year monthly decline in more than two years.



The luxury segment in China may be getting hit particularly hard. BMW executives, discussing the automaker's 1% drop in second-quarter profit for the year, blamed some of the decline on a slowing Chinese economy and said they may have to rethink full-year profit estimates. BMW unit sales for the quarter were down 1.4% in China.

"The sales expenses have gone up and the sales prices have come down slightly," said Tetsuya Otake, a Toyota managing officer, on Tuesday in Tokyo. "This is making our business in China quite difficult. The business environment is getting tougher." Toyota is ending a temporary ban on new factories by adding capacity in Mexico and China. But the new Chinese factory in Tianjin, to open in mid-2018, will replace another that is closing.

Audi, VW's luxury brand, last month abandoned its goal to sell 600,000 vehicles in the country in 2015. China sales for the brand rose 1.9% in the first half, although June was weak.

GM managed an increase in second-quarter profit for its international operations, of which China is the most important component.

Chuck Stevens, GM's chief financial officer, said the automaker will try to reduce material costs to balance slower sales. But GM isn't backing off bullish projections for the longer term, he said.

"We are going to continue to invest," Stevens said last month. "Over the next 10 to 15 years that market is going to be a 35 million unit industry."

Auto executives remain optimistic that robust sales will return to China, although perhaps not right away and not at the double-digit pace of the early days. The country has developed into a reliable profit source for the global industry, one that the automakers will fight hard to maintain.



The article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.