China’s Auto Inventories Reached Alert Level image

The inventories at China’s dealerships continue to raise, a clear sign that the sales are slowing, which might lead to a price war.

According to China Automobile Dealers Association, in June the comprehensive inventory index reached 1.98, an increase from 1.88 in May. For the first half of 2012, the inventory index in June is the second highest, since February when it reached 2.32. If we are to take into consideration the international practice in the auto industry, a normal inventory index should stay between 0.8 and 1.2, and at 1.5 there’s already an alert level.

The survey was made on 41 auto brands, 1,000 4S stores own by the best 100 car dealers in China. The most affected dealers by excessive inventories were those in Haima, where the average inventory index reached 6.71 two months ago.

“Those carmakers whose dealers have high levels of inventory should adjust their production in the second half of this year to relieve pressures on dealers. Otherwise, more dealers will possibly quit,” said Zhao Chunhong, an analyst from the auto dealer association.

The slowing economy affected the auto sales in China, which increased only 2.93% to 9.60 million units from January to June. More than a half of the total number of companies didn’t manage to reach their first-half sales targets.