CHINA'S decision to raise gasoline for a third time this year may hurt overall car sales amid an industry slump, but it could prove a plus for the development of fuel-efficient technologies and sales of green cars.

The National Development and Reform Committee raised gasoline prices by a larger-than-expected 6 to 7 percent to a record high on March 19 to help refiners cover losses.

The maximum price for 93-octane gasoline, most widely used in passenger cars, has increased 60 percent in the past three years after China linked fuel pricing with a basket of global crudes.

All this has come at a bad time for the auto industry.

The impact of higher fuel prices on car-buyer sentiment has been partially offset in the past by government incentives and subsidies on auto purchases, instituted in the wake of the global financial crisis to underpin the industry. No more. Most all of them have expired.

Car sales last year slowed to 2.5 percent last year after a 32 percent surge in 2010.

Cui Dongshu, deputy secretary general of China Passenger Car Association, estimated March car sales missed expectations by as much as 20,000 units because of the fuel price rise.

"It's inevitable that some potential buyers put off vehicle purchases, particularly lower-income consumers are more sensitive to running costs," Cui added.

Sales decline

China's passenger car sales fell 1.25 percent in the first quarter to 3.77 million units, the worst start in seven years. March sales gained 4.5 percent, according to the China Association of Automobile Manufacturers.

Among all segments, smaller engine models were the most seriously affected by the sales decline. Cars with engine replacements of 1.6-liters or below suffered a sales drop of 4.3 percent, the association said. That segment's share of the market fell 1.5 percentage points to 70.2 percent from a year earlier.

"Consumers buying mid-class sedans, such as Passat and Camry, care more about showing off their wealth than buying a car for its utility," said Zeng Zhilin, analyst from LMC Automotive.

That's bad news for domestic auto makers. Chery, Geely and Chang'an, among others, have relied on lower-priced models to build up sales.

Higher fuel prices also put Chinese domestic auto companies in a tougher position in the competition against international auto giants like General Motors and Volkswagen.

In the first quarter, the market share of Chinese brand vehicles fell 3.19 percentage points to 42.8 percent.

Wuhu, Anhui Province-based Chery Automobile Co said it sold 58,709 vehicles in March. That was a 4 percent decline year on year.

FAW Car, the listed unit of China's second-largest auto group FAW Group Co, issued warnings that it may lose 8 million yuan (US$ 1.3 million) to 15 million yuan in the first quarter of this year. It's the first listed auto company that portend a quarterly loss, after reporting a 34 percent decline in vehicle sales in the January-March period.

BYD Co also predicted first-quarter net profit would fall up to 95 percent due to slack car sales.

Dong Yang, secretary-general of the China Association of Automobile Manufacturers, is forecasting that the next three years will be a period of "suffering" for Chinese auto companies.

China overtook the United States as the world's largest auto market in 2009, and most industry watchers still see huge market potential even if growth fluctuates from year to year.

Many of them believed that fuel prices are not a dominant factor in the decision to buy a car.

"Last year, about 82 percent of customers were first-time buyers in China, which means there was very solid demand for cars," said Zeng,

"Plus, car prices also are dropping quickly nowadays."

Lower penetration

For one thing, the penetration rate in China is about 1 vehicle for every 17 people. That compares with a car ownership ratio for Japan of 1 to 1.7 people, and a ratio of 1 to 1.25 in the United States.

Sales of sports-utility vehicles and multi-purpose vehicles are also expected to continue to outpace the industry average due to vehicle upgrading.

Zhong Shi, an independent auto analyst, noted that more Chinese still consider a car as a daily necessity of the future, though fuel efficiency and frequency of vehicle use may become more serious factors in determining what kind of car they buy.

In the first quarter of this year, new energy vehicle sales surpassed 10,000 units, including 1,830 electric cars, 1,499 hybrids and 6,873 models using alternative fuels, according to the automobile manufacturers group. Those totals surpassed full-year sales last year.

Rising interest in more fuel-efficient cars may provide the impetus for faster development of greener technologies.

Alternative energy vehicles have had a hard time cracking the market because consumers are put off by their high price and inadequate infrastructure, such as charging stations for electric cars. Turbo engines and fuel direct injection systems are the two most popular energy-saving technologies in China.

According to LMC, about 70 percent of the turbo engines on the Chinese market were used by Volkswagen. General Motors, the biggest foreign auto company in China, has been promoting its turbo technology, which gives better power but consumes less energy.

One of the latest examples is GM's Chevrolet Malibu sedan, which comes equipped with a 1.6-liter turbo engine and is expected to be one of the highlights at the Beijing auto show this month. Both Volkswagen and GM benefited most in the first quarter of this year from the push for green technologies in China. Volkswagen achieved sales growth of 20 percent in the first three months, while GM reported an 8.7 percent increase and record quarterly sales.

Chinese auto companies such as Great Wall, Brilliance and Chery are also preparing to ramp up their use of fuel-efficient technologies.

Chery recently introduced its latest advances in engines and transmissions into its mainstream compact model Chery A3 and Riich G3. The models include engines with dual variable valve timing technology and continuously variable transmissions, which have up to 10 percent fuel consumption savings.