Passenger vehicle sales increased 9.3% in June in China thanks to increased discounts aimed at clearing stocks and reaching half-year targets.
Vehicle wholesale deliveries reached 1.4 million units in June, an increase from 1.28 million units in June 2012, according to China Association of Automobiles Manufacturers.
“A lot of dealers are urged to clean the inventory of the old models,” said Vivien Chan, a Hong Kong-based analyst at Oriental Patron Holdings. “That’s why they give a little bit bigger discounts to drive the sales.”
Last month GM broke ground on a new Cadillac plant in China, and Ford and PSA Peugeot Citroen opened new facilities, as foreign automakers have began to expand in the region, considered the largest auto market in the world. Demand from first-time buyers in smaller cities continues to rapidly increase, according to Jeff Chung, a Hong Kong-based automotive analyst at Daiwa Securities Group.
But China’s cash crunch begins to affect auto sales, as banks have become more drastic in approving vehicle loans. The cash cut strategy, which led interbank borrowing costs at record levels in June, have also caused, what Luo Lei, deputy secretary-general of the China Automobile Dealers Association calls “psychological panic among dealers over access to financing.”
“So far, it hasn’t caused any real damage to the industry, but if the cash crunch continues, the impact will spread to auto dealers,” said Luo Lei.