China car prices drop most in 2 years as dealership inventories climb, government says
China's passenger-vehicle prices fell the most in two years because of a worsening glut at auto dealerships, the nation's top economic planning agency said.
Average retail prices in May fell 1.1 percent from April, the steepest month-to-month drop since June 2010, Cheng Xiaodong, chief of auto price monitoring at the National Development and Reform Commission, said in a telephone interview Tuesday.
Automakers are overstocking cars at a time when dealers are pessimistic about their sales prospects, he said.
The price drops add to signs that Chinese consumer demand for cars is lagging behind the rising wholesale vehicle deliveries that automakers are reporting.
Last week, China's biggest dealer association said automakers need to scale back sales targets or sweeten incentives because the worsening glut across the nation's showrooms is unsustainable.
"The market is deteriorating quickly," said Vivien Chan, an analyst with SinoPac Securities Asia Ltd. in Hong Kong. "Price declines are no doubt adding more pressure on auto dealer stocks."
In the auto industry, month-to-month comparisons better reflect the health of vehicle demand than year-to-year data, the development and reform commission's Cheng said. Prices in May dropped 1.7 percent from a year earlier, deepening from April and in line with the drop in March, according to the commission's data.
Rising inventory
Average inventory carried at Chinese showrooms exceeded a 60-day supply by the end of May, compared with more than a 45-day supply at the end of April, said Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association.
Three days later, the official China Association of Automobile Manufacturers reported that wholesale deliveries of passenger vehicles in May climbed 23 percent from a year earlier to 1.3 million units, defying an economic slowdown that has forced China to cut interest rates, loosen lending restrictions and pursue stimulus measures.
Automakers disclose the number of vehicles sold to Chinese dealerships, but not retail sales to consumers.
"We think this is a very dangerous strategy of the automakers stuffing the dealers in the hopes of selling more," wrote Ole Hui and Jeremy Yeo, Hong Kong analysts at Mizuho Financial Group Inc., in a Tuesday report. "We think [automakers] are due for payback time and we may see production cuts and thus weaker wholesale sales in" the second half of 2012.
Dealerships carrying Japanese brands were hit hardest among the foreign joint ventures, said Feng Han, secretary general of the China Auto Dealers Chamber of Commerce, which has more than 2,300 members. Cars made by Volkswagen AG and General Motors were least affected by rising inventories at dealerships, Han said.
Seeing a rebound
Ma Chunping, a spokeswoman for Toyota Motor Corp.'s joint venture with China FAW Group Corp., said its dealership inventory levels range from 21 days to 36 days. Toyota's joint venture with Guangzho Automobile Group Co. is not experiencing an inventory problem, said spokesman Chen Daohong.
Spokesmen at Nissan Motor Co. and Honda Motor Co. did not immediately comment.
The automakers association says the industry is recovering from a slump that had kept January-to-April shipments down from a year earlier, Deputy Secretary General Yao Jie said in the association's briefing Saturday.
A week earlier, Kevin Wale, chief of General Motors' China operations, said he's "pretty optimistic" about Chinese consumer demand. "I can't see anything in the Chinese environment that's leading to an unusual decline in consumer confidence," Wale said in a May 31 interview in Shanghai.
Inventory worries in China may be overblown, Macquarie Group Ltd. analysts Jake Lynch and Zhixuan Lin wrote in a report Monday. Auto production lagged wholesale deliveries by 40,000 units in May, they wrote, and carmakers have "little incentive to overstock their dealers with cars that cannot be sold at targeted price points."
Automakers are overstocking cars at a time when dealers are pessimistic about their sales prospects, he said.
The price drops add to signs that Chinese consumer demand for cars is lagging behind the rising wholesale vehicle deliveries that automakers are reporting.
Last week, China's biggest dealer association said automakers need to scale back sales targets or sweeten incentives because the worsening glut across the nation's showrooms is unsustainable.
"The market is deteriorating quickly," said Vivien Chan, an analyst with SinoPac Securities Asia Ltd. in Hong Kong. "Price declines are no doubt adding more pressure on auto dealer stocks."
In the auto industry, month-to-month comparisons better reflect the health of vehicle demand than year-to-year data, the development and reform commission's Cheng said. Prices in May dropped 1.7 percent from a year earlier, deepening from April and in line with the drop in March, according to the commission's data.
Rising inventory
Average inventory carried at Chinese showrooms exceeded a 60-day supply by the end of May, compared with more than a 45-day supply at the end of April, said Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association.
Three days later, the official China Association of Automobile Manufacturers reported that wholesale deliveries of passenger vehicles in May climbed 23 percent from a year earlier to 1.3 million units, defying an economic slowdown that has forced China to cut interest rates, loosen lending restrictions and pursue stimulus measures.
Automakers disclose the number of vehicles sold to Chinese dealerships, but not retail sales to consumers.
"We think this is a very dangerous strategy of the automakers stuffing the dealers in the hopes of selling more," wrote Ole Hui and Jeremy Yeo, Hong Kong analysts at Mizuho Financial Group Inc., in a Tuesday report. "We think [automakers] are due for payback time and we may see production cuts and thus weaker wholesale sales in" the second half of 2012.
Dealerships carrying Japanese brands were hit hardest among the foreign joint ventures, said Feng Han, secretary general of the China Auto Dealers Chamber of Commerce, which has more than 2,300 members. Cars made by Volkswagen AG and General Motors were least affected by rising inventories at dealerships, Han said.
Seeing a rebound
Ma Chunping, a spokeswoman for Toyota Motor Corp.'s joint venture with China FAW Group Corp., said its dealership inventory levels range from 21 days to 36 days. Toyota's joint venture with Guangzho Automobile Group Co. is not experiencing an inventory problem, said spokesman Chen Daohong.
Spokesmen at Nissan Motor Co. and Honda Motor Co. did not immediately comment.
The automakers association says the industry is recovering from a slump that had kept January-to-April shipments down from a year earlier, Deputy Secretary General Yao Jie said in the association's briefing Saturday.
A week earlier, Kevin Wale, chief of General Motors' China operations, said he's "pretty optimistic" about Chinese consumer demand. "I can't see anything in the Chinese environment that's leading to an unusual decline in consumer confidence," Wale said in a May 31 interview in Shanghai.
Inventory worries in China may be overblown, Macquarie Group Ltd. analysts Jake Lynch and Zhixuan Lin wrote in a report Monday. Auto production lagged wholesale deliveries by 40,000 units in May, they wrote, and carmakers have "little incentive to overstock their dealers with cars that cannot be sold at targeted price points."
