China Auto Glut Builds as Plant Shipments Outstrip Sales
Carmakers are giving Chinese dealers no relief in their effort to reduce a glut of unsold automobiles in a slowing economy, as factories pump passenger vehicles into showrooms faster than distributors can sell them.
Wholesale deliveries, including multipurpose and sport- utility vehicles, climbed 23 percent from a year earlier to 1.28 million units in May, the China Association of Automobile Manufacturers said June 9 in Beijing. That beat the 1.2 million average estimate of seven analysts in a Bloomberg survey, the third straight month shipments exceeded forecasts.
The surge, led by Toyota Motor Corp. (7203) and Honda Motor Co. (7267) as they recover from last year’s natural disasters, may raise pressure on distributors to deepen discounts and sell cars at a loss to meet mandatory targets set by automakers. Factory managers may have to slow production unless the discounts and potential government policies to encourage sales ease the glut.
“If there’s a bottleneck out the retail channel, obviously that at some point comes back and you have to cut production,” said Kevin Tynan, an automotive analyst at Bloomberg Industries. “Something has to give. Either you’re going to incentivize the consumer to buy, whether that’s the government or the manufacturers, or you’re going to have to pull back on production somewhere, and it doesn’t sound like the manufacturers are in a big hurry to do that.”
The carmakers and state-backed CAAM say they’re confident demand is picking up. Automakers such as General Motors Co. only disclose the number of vehicles sold to Chinese dealers -- instead of consumers. Most carmakers use sales to dealerships to calculate revenue, according to Gao Song, an analyst with Citic Securities Co. (6030) in Beijing.
“There are clear signs indicating the industry is becoming more stable,” Deputy Secretary General Yao Jie said in Beijing. “For the first time this year, accumulative sales and production have exceeded that of a year earlier.”
For the first five months, passenger-vehicle sales increased 5.5 percent to 6.33 million units, according to CAAM.
Sport-utility vehicles registered the biggest wholesale delivery growth by category, rising 58 percent to 162,600 units in May as sedan sales rose 20 percent, according to CAAM. Minivans, which are used as passenger and commercial vehicles, rose 16 percent to 185,700 units, the association said.
Toyota’s China sales in May more than doubled to 78,700 units. Honda reported a 92 percent surge and Nissan Motor Co. (7201)’s sales increased 20 percent. Last year, production at the Japanese automakers was hurt by the earthquake and tsunami in Japan and floods in Thailand.
“Last May was pretty bad in terms of the passenger-car sales tally,” Harry Chen, a Shenzhen-based analyst with Guotai Junan Securities Co., said before the release.
GM (GM), the world’s biggest automaker, said June 5 that vehicle sales in China rose 21 percent in May, led by demand for its Wuling minivan and Chevrolet models. Ford Motor Co. (F) saw its passenger-vehicle deliveries gain 23 percent.
“We expect sales growth to remain strong in June,” UBS AG (UBSN) analysts Hou Yankun, Xu Ming and Zou Tianlong, wrote in a note on June 6. Government stimulus policies “could boost consumer sentiment in the short term,” they wrote.
Kevin Wale, head of GM’s China operations, said in a May 31 interview that he’s “pretty optimistic” Chinese consumers return to dealerships. “I can’t see anything in the Chinese environment that’s leading to an unusual decline in consumer confidence,” he said.
Dealers aren’t as optimistic. Average inventory carried at Chinese showrooms 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, Luo Lei, deputy secretary general of the state- backed China Automobile Dealers Association, said in an interview last week. The glut at the dealerships, which is leading to price cuts, is unsustainable, he said.
“The picture we have is very different from what the automakers are painting,” Luo said. “The sales increases they’re reporting are achieved by loading dealers with stock.”
China on June 7 announced its first interest rate cut since 2008 as policy makers seek to bolster growth. Economic data over the weekend may add pressure on the government to introduce such buying incentives. Chinese consumer prices in May rose the least in two years, while industrial output and retail sales trailed economists’ estimates, according to data released by the Beijing-based National Bureau of Statistics on June 9.
China’s cabinet agreed last month to revive financial incentives for consumers to trade in their cars to help increase demand, a government official said last month. Separately, the finance ministry said on May 29 that the government will spend as much as 2 billion yuan a year to develop alternative-energy vehicles to reduce fuel consumption.
CAAM deputy secretary general Dong Yang said at the briefing he was unaware of stimulus policies for the automotive industry “anytime soon.”
One of the first steps may come as a government program to encourage sales of smaller, fuel-efficient cars, Tynan at Bloomberg Industries said.
“You will get some clear signals, some yellow lights, before you get to production cuts,” he said.
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