China dealers receiving more cars than they can sell as economy slows

Article by Anita Panait, on June 11, 2012

Dealers in China are receiving more vehicles from car manufacturers than they could sell as the Chinese economy is moving sluggishly. According to the China Association of Automobile Manufacturers, wholesale deliveries, which include multipurpose vehicles and sports utility vehicles, soared 23 percent year-on-year in May 2012 to 1.28 million units.

The figure even exceeded the 1.2 million average estimate of seven analysts who participated in a Bloomberg survey, marking the third straight month that deliveries beat forecasts. The rise in deliveries to dealers was driven by the recovery of Japanese carmakers Toyota and Honda from the natural disasters in 2011 that affected their supplies.

However, the rise in deliveries could also put more pressure on dealers to offer more discounts and sell vehicles at a loss just to meet the sales quotas set by carmakers. The rise in deliveries could also affect production at factories. According to Kevin Tynan, an automotive analyst at Bloomberg Industries, car makers may have to stop production at their sites if there is a “bottleneck out the retail channel.”

Tynan enumerated two possible actions to remove the bottleneck. First, the Chinese government or the car makers could offer incentives to encourage consumers to buy. Second, auto makers have to plug their production, something which they may not be amenable to. Despite the figures, CAAM and carmakers expressed confidence that demand for vehicles in the country is picking up. Deputy Secretary General Yao Jie said that there are clear signs that the auto industry is becoming more stable.

Topics: china, sales

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