China is slowing down; Average inventory just too high image

China’s biggest auto-dealer association said automakers need to do something to scale back their sales targets or sweeten incentives, because most of the dealers are struggling with the rising number of unsold cars.

“Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west,” Su Hui, vice president of the auto market division at the state-backed China Automobile Dealers Association, told Bloomberg in an interview.

“It’s like a contagious disease that will spread.”

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.

The warning signals 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.

Demand was the slowest in the first five months since 1998, weighing on automakers from General Motors Co. to Volkswagen AG, which are counting on the world’s largest auto market to offset slumping sales in Europe.

China’s nationwide vehicle sales rose just 2.5 per cent to 18.51 million units in 2011, compared with an annual increase of more than 32 per cent in 2010.

China’s economy has also started to slow with growth of 8.1 per cent in the first quarter of 2012, its slowest pace in nearly three years.