Soft Prices, High Inventories Hurt China's Dealers
Dealerships for Honda Motor Co., Chery Automobile Co., BYD Co. and Geely Automobile Holdings Ltd. carried more than 45 days of inventory at the end of April, exceeding the threshold that foreshadows debilitating price cuts, Su Hui, vice president of the auto market division at the state-backed China Automobile Dealers Association, said in an interview.
Su's warning suggests that vehicle deliveries reported by companies, which have risen more than analysts' estimates for the past two months, aren't fully translating to consumer sales and are resulting in a pileup at showrooms. Demand was the slowest in the first four months since 1998, weighing on automakers from General Motors to Volkswagen AG.
"Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi'an to the west," Su said in a phone interview last week from Beijing. "It's like a contagious disease that will spread."
An increasing number of small-scale dealers are suffering losses after discounting cars to boost sales, according to Feng Jian, deputy general manager of Pang Da Automobile Trade Co., China's second-largest auto dealer by market value.
Honda shut down
Honda's joint venture factory in China had shut down for 15 days for the Labor Day public holiday and line maintenance, according to the automaker. The stoppage prompted CLSA Asia Pacific Markets to cut its recommendation on Honda's partner, Guangzhou Automobile Group Co., citing worsening demand.
Honda President Takanobu Ito said last week at an event in Tokyo that he wasn't too concerned about China because the market still has room to expand. Executive Vice President Tetsuo Iwamura said at the same event the automaker's inventory levels in China are "appropriate" and "aren't too big of an issue yet."
CLSA this month also lowered its recommendations on Dongfeng Motor Corp. and Great Wall Motor Co., citing worsening prospects for sedan makers.
Vehicle sales
China's total vehicle sales declined 1.3 percent in the January-to-April period, the worst showing since 1998 when deliveries fell 1.6 percent, according to China Association of Automobile Manufacturers data, as slowing economic growth and rising fuel prices dented consumer demand.
GM, the world's largest automaker, reported sales growth accelerated last month as demand for its Wuling microvans offset a drop in Chevrolet deliveries. While Wuling helped total growth quicken to 12 percent from 11 percent in March, Buick sales slowed to 2 percent from a year earlier and demand for Chevrolet vehicles shrank 6 percent.
Inventory levels at automakers rose 3 percent to 757,400 units as of the end of April, the highest in at least 16 months, the manufacturers association's data show. Dealerships are holding at least the equivalent in stock, according to Cheng Xiaodong, who oversees auto price monitoring at the National Development and Reform Commission, the nation's top economic planner.
The commission's monthly survey of 36 major Chinese cities showed average car prices fell 2 percent in April from a year earlier, a fourth straight decline this year.
'Big pressure'
"There's pretty big pressure on auto dealers and automakers to cut prices," said the commission's Cheng. "Car demand is not rigid and is easily undermined by macro-economic conditions and the cost of owning cars."
China's economic growth is forecast at a 13-year low after reports showed April industrial production and trade grew less than estimated and renewed European debt turmoil roiled markets.
Authorities on May 12 cut the reserve ratio for the third time in six months following the weaker-than-forecast economic data.
Steeper discounts bode well for consumers shopping for their next drive.
"The auto consumer is becoming very price sensitive and appears to be buying only if there is a good deal," said Ole Hui, a Hong Kong analyst at Mizuho Securities Asia Ltd. "Pricing is definitely on a structural downtrend."
"Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi'an to the west," Su said in a phone interview last week from Beijing. "It's like a contagious disease that will spread."
An increasing number of small-scale dealers are suffering losses after discounting cars to boost sales, according to Feng Jian, deputy general manager of Pang Da Automobile Trade Co., China's second-largest auto dealer by market value.
Honda shut down
Honda's joint venture factory in China had shut down for 15 days for the Labor Day public holiday and line maintenance, according to the automaker. The stoppage prompted CLSA Asia Pacific Markets to cut its recommendation on Honda's partner, Guangzhou Automobile Group Co., citing worsening demand.
Honda President Takanobu Ito said last week at an event in Tokyo that he wasn't too concerned about China because the market still has room to expand. Executive Vice President Tetsuo Iwamura said at the same event the automaker's inventory levels in China are "appropriate" and "aren't too big of an issue yet."
CLSA this month also lowered its recommendations on Dongfeng Motor Corp. and Great Wall Motor Co., citing worsening prospects for sedan makers.
Vehicle sales
China's total vehicle sales declined 1.3 percent in the January-to-April period, the worst showing since 1998 when deliveries fell 1.6 percent, according to China Association of Automobile Manufacturers data, as slowing economic growth and rising fuel prices dented consumer demand.
GM, the world's largest automaker, reported sales growth accelerated last month as demand for its Wuling microvans offset a drop in Chevrolet deliveries. While Wuling helped total growth quicken to 12 percent from 11 percent in March, Buick sales slowed to 2 percent from a year earlier and demand for Chevrolet vehicles shrank 6 percent.
Inventory levels at automakers rose 3 percent to 757,400 units as of the end of April, the highest in at least 16 months, the manufacturers association's data show. Dealerships are holding at least the equivalent in stock, according to Cheng Xiaodong, who oversees auto price monitoring at the National Development and Reform Commission, the nation's top economic planner.
The commission's monthly survey of 36 major Chinese cities showed average car prices fell 2 percent in April from a year earlier, a fourth straight decline this year.
'Big pressure'
"There's pretty big pressure on auto dealers and automakers to cut prices," said the commission's Cheng. "Car demand is not rigid and is easily undermined by macro-economic conditions and the cost of owning cars."
China's economic growth is forecast at a 13-year low after reports showed April industrial production and trade grew less than estimated and renewed European debt turmoil roiled markets.
Authorities on May 12 cut the reserve ratio for the third time in six months following the weaker-than-forecast economic data.
Steeper discounts bode well for consumers shopping for their next drive.
"The auto consumer is becoming very price sensitive and appears to be buying only if there is a good deal," said Ole Hui, a Hong Kong analyst at Mizuho Securities Asia Ltd. "Pricing is definitely on a structural downtrend."
