Automakers are giving Chinese dealers no relief in their effort to reduce Inventories image

Even if the Chinese economy is slowing down, most of the carmakers are giving Chinese dealers no relief in their effort to reduce inventories, as factories pump passenger vehicles into showrooms faster than distributors can sell them.

China’s auto market revved to life in May despite the weakening economy, with vehicle sales jumping nearly 16 percent from a year earlier to 1.61 million units, industry figures showed Saturday.

Passenger car sales continued to outstrip sales of commercial vehicles, with 1.28 million passenger cars sold in May, up 23 percent from a year earlier, the association said.

The surge, led by Japanese automakers like Toyota and Honda may raise pressure on dealers to deepen discounts and sell cars at a loss to meet mandatory targets set by automakers. Factory managers may have to slow production unless the discounts and potential government policies to encourage sales ease the glut.

Average inventory carried at Chinese dealerships bloated to a level exceeding two months of sales by the end of May, compared with more than 45 days at the end of April, Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association, said in an interview yesterday.

“Dealers can’t shoulder the burden anymore,” said Luo, whose association is authorised by the central government and represents 2,100 dealership groups. “Their backs are broken.”

“Two months of inventory is pretty dangerous for the industry,” Harry Chen, a Shenzhen-based analyst with Guotai Junan Securities Co, said in a telephone interview. “The most direct way to digest inventory is to cut prices.”

China’s once-booming car market grew by 5.2 percent last year, a significant cooling from the respective 33 percent and 53 percent rises in 2010 and 2009.
That slowdown has been attributed to several factors, from the end of tax incentives for small cars to local authorities’ efforts to combat ever-worsening traffic congestion in major cities.