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China used to be the no-brainer market for automakers, with rising incomes creating millions of first-time buyers. That view is under siege, with carmakers cutting prices and output as the industry scales back growth forecasts.

BMW AG will reduce output this quarter and has lowered prices on some models to adjust to the “new normal,” Karsten Engel, the company’s China chief, said at this week’s Shanghai auto show. Vehicle sales in China this year may rise less than the 7 percent projected in January, the China Association of Automobile Manufacturers said Tuesday, without making a new forecast.

The Shanghai show will be marked by discussions about further price cuts and arguments with dealers about sales targets as growth slows, Sanford C. Bernstein & Co. said in a report Monday.

“China is the single most important determinant of auto industry earnings,” Max Warburton, senior analyst at Sanford C. Bernstein, wrote in the report. “BMW is the only OEM to have warned explicitly about China so far, but we expect others to follow.”

Ford Motor Co., which is spending $4.9 billion to double manufacturing capacity there, is seeing some pricing pressure, Chief Executive Officer Mark Fields said at the show.

Rising incomes and low ownership rates helped make China the largest auto market in the world in 2009, surpassing the U.S. at a time when the American economy was mired in recession. With Europe also in the doldrums and Japan facing a shrinking population, global automakers looked to China as a source of growth.

Domestic and foreign-based carmakers are building more factories in China than anywhere else, a construction binge that risks hurting margins in what remains one of the world’s most profitable vehicle markets. Global automakers are under pressure to cut prices as Chinese brands grab market share by offering cheap SUVs.

Honda Motor Co. is feeling the most pressure to trim prices on mid-size sedans and is offering discounts of about 5 percent, said Seiji Kuraishi, chief of the company’s China unit.

Toyota weighs expansion

Toyota Motor Corp., already planning to build one new assembly plant in China in 2017, is in talks to further ramp up production in the world’s largest auto market.

The carmaker is weighing expansion in northern China, where it has a joint venture with FAW Group, to reach 2 million sales per year, Hiroji Onishi, chief executive officer of Toyota’s China business, said Tuesday. Toyota said last week it will spend about$439 million to add production in 2017 with Guangzhou Automobile Group Co.

“No concrete decision has been made, but just as in the case of our operations in the southern part of China, we continue to have discussions with our partners aiming at our growth over the medium term,” Onishi told reporters at the Shanghai auto show.

Toyota sold 1 million vehicles in the country for the first time in 2014, two years behind schedule.

Bloomberg News

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