Auto inventories up amid slack sales

Two auto associations offered differing views Monday on the state of China's auto inventories, with one saying the situation is normal and the other warning of worrying levels of vehicle stockpiles.

China Association of Automobile Manufacturers (CAAM) said that auto inventories are within a normal range, but China Automobile Dealers Association (CADA) said its survey showed that inventories had climbed to an alarming level.

"Our data is based on industrial inventory, or the stock at auto producers that has not been sold to retailers. The data from the CADA is commercial inventory, which is the stock at auto retailers," Du Fangci, assistant secretary-general of the CAAM, told the Global Times.

The two sets of data are not contradictory, said Du, as auto producers have sold more cars to retailers than retailers have sold to consumers. "The economic downturn has resulted in reduced purchasing power," Du noted.

"Automakers set high sales targets, and some producers did not adjust the targets despite sluggish sales to consumers, causing large inventories and big capital pressure for some retailers," said Lang Xuehong, director of the industry coordination division at the CADA.

Sales of passenger cars increased 0.24 percent month-on-month in June, according to the CAAM, but a recent survey of auto retailers by the CADA found that retailers' sales in June fell by 2.79 percent from May, reflecting the increased inventory at many retailers.

The CADA retailer inventory index, which is based on more than 1,000 retailers selling 40 auto brands, increased to 1.98 in June from 1.88 in May, well above the level of 1.2 that is considered to be reasonable.

"The reduction in vehicle purchase tax in June released by the Ministry of Finance was partly in response to slack auto sales," Lang told the Global Times.

However, one reason for the boost in June inventories is that auto producers usually slow down production slightly in July and August in order to conduct equipment maintenance. So they boost production in June in order to guarantee sufficient supply, Lang noted.

The situation has also improved recently, she said, as some auto manufacturers have launched promotions to help retailers increase sales. Some have also given subsidies to retailers to reduce their capital pressure since July and stimulate more sales.

A salesman at Wenhua store in Beijing, which sells Guangzhou Honda cars, told the Global Times Monday that the store had begun to cooperate with the producer to launch promotions since July, and as a result inventories have fallen to an ideal level.

Automakers around China had a total inventory of 736,300 vehicles by the end of July, an increase of 47,700 from the end of June, according to the CAAM. The association said that the increase in producers' inventories would relieve the inventory pressure for retailers.

The upcoming months of September and October are usually China's peak season for auto sales, which should also reduce retailers' inventories to reasonable levels, Lang said.