Mercedes Adds to Worries on China

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BEIJING—Sounding the latest alarm about slowing economic growth in China, Mercedes-Benz on Friday said luxury-car sales gains slowed in what has been its fast-growing major market.

The sales environment for Daimler AG's luxury car brand Mercedes-Benz is turning "a bit more challenging" in China, as sales growth slowed over the summer, a senior Mercedes executive said.

The news adds to worries China, India, Brazil and other emerging markets that helped lift the global economy out of its most recent recession could now sputter. On Thursday, a gauge of Chinese manufacturing sentiment pointed to a third straight month of decline in the country's manufacturing activity.

Mercedes, like U.S. exporters including Boeing Co., Caterpillar Inc., and Cargill Inc., strongly benefited from Chinese demand in the last two years. Now, efforts by China to slow its economy and curb inflation are showing up in everything from raw materials prices to consumer electronics. FedEx Corp. this week cut its outlook, citing reduced cargo traffic on slowing global demand for consumer gadgets. Costs for such goods have been rising as Chinese manufacturers look to offset rising labor and component costs.

Luxury car sales have defied a marked slowdown in the growth rate of China's overall auto market this year and have been soaring. Sales at Mercedes-Benz's China unit grew nearly 60% during the first half of this year. The country already is the single biggest market for Mercedes top-of-the-line S-Class cars.

But sales gains slowed in July and August, said Klaus Maier, head of Mercedes-Benz in China, in an interview Friday. For the first eight months of the year, Mercedes-Benz sales in China totaled 123,590, up 41% from a year earlier, he said. The company didn't release specific Mercedes-Benz sales-growth figures in China for July or August.

Mercedes-Benz's sales figures for China don't include cars sold in Hong Kong but do reflect sales of small cars from Smart, another Daimler car brand.

Mr. Maier said that, despite the easing growth rate, it was still difficult to determine whether China's luxury car market is shifting into lower gear.

July and August are "always slow sales months in China," and the company needs to see what happens to its China sales in September before it could effectively figure out "where the market is going for the rest of the year," he said.

There have been signs elsewhere that Asia's affluent aren't losing their taste for luxury goods. Compagnie Financiere Richemont SA, the Swiss-based maker of Cartier jewelry and Piaget watches, said its April-to-August sales in China rose 46% from a year ago. Italian fashion house Prada SpA this week said its sales in Asia excluding Japan jumped 35%, adding it hasn't seen decreasing orders for its goods.

According to Mercedes-Benz, cars imported from Germany account for nearly 70% of the overall number of cars Mercedes-Benz sells in China. The company sold a total of 147,670 cars last year.

The slowdown, Mr. Maier said, was somewhat expected after a huge first half for the upscale brand. And sales are "still great" given the overall market slowdown this year, he said. China's broader auto market has slowed in part due to sluggish sales of affordable micro-vans and other small cars, thanks to a cancellation of government incentives, among other reasons.

Some industry insiders and analysts say the overall auto market in China—which has been the world's largest since 2009—is expected to grow around 5% this year from a year earlier after surging about 30% in 2010 to 18 million vehicles.