Dealers in China Face Potential Overcapacity image

In July, the average stockpiles at dealerships in China, fell for the fourth straight month, a result of the automakers’ decision to close factories for summer maintenance.

According to Luo Lei, deputy secretary general of the China Automobile Dealers Association, in July, inventory levels fell from the equivalent of 1.98 months of sales in June, to 1.7 months of sales. Luo also added that average stockpiles are expected to decrease to 1.5 months of sales by the end of this year and that automakers need to lower their sales target or boost incentives as the drop in vehicle sales across the nation’s dealerships is unsustainable. The increasing stockpiles made dealers offer bigger discounts to be able to reach the automakers’ sales targets.

“The industry isn’t in a healthy status,” Pang Da Chairman Pang Qinghua said in a speech at an auto forum in Tianjin. “Supply and demand is in serious imbalance.”

For the first time in 9 months, manufacturing shrank alarmingly, as output rose at a slower pace and orders contracted. This only means that the fall in the world’s second- biggest economy becomes deeper. In 2009 China managed to surpass the US and become the world’s largest auto market, now dealing with potential overcapacity.