China passenger-vehicle prices fell the most in about two years because of a worsening glut at auto dealerships, the nation’s top economic planning agency said.
Average retail prices in May fell 1.1 percent from April, the steepest sequential drop since June 2010, Cheng Xiaodong, head of auto-price monitoring at the National Development and Reform Commission, said in a telephone interview today. Automakers are overstocking cars at a time when dealers are pessimistic about their sales prospects, he said.
The deepening price drops add to signs that Chinese consumer demand for cars is lagging behind the rising wholesale vehicle deliveries that automakers are reporting. China’s biggest dealer association said last week that carmakers need to scale back sales targets or sweeten incentives because the worsening glut across the nation’s showrooms is unsustainable.
“The market is deteriorating quickly,” said Vivien Chan, an analyst with SinoPac Securities Asia Ltd. in Hong Kong. “Price declines are no doubt adding more pressure on auto dealer stocks.”
Zhongsheng Group Holdings Ltd. (881), a Beijing-based luxury car dealer, fell by as much as 6.1 percent in Hong Kong today, and Baoxin Auto Group Ltd. (1293) declined as much as 3.4 percent to a record low of HK$5.25.
In the auto industry, month-on-month comparisons better reflect the health of vehicle demand than year-on-year data, NDRC’s Cheng said. Prices in May dropped 1.7 percent from a year earlier, deepening from April and in line with the drop in March, according to NDRC data.
Average inventory carried at Chinese showrooms exceeded 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 on June 6.
Three days later, the official China Association of Automobile Manufacturers reported that wholesale deliveries of passenger vehicles in May climbed 23 percent from a year earlier to 1.28 million units, defying an economic slowdown that’s forced China to cut interest rates, loosen lending restrictions and pursue stimulus measures.
The auto shipments beat the 1.2 million average of seven analyst estimates in a Bloomberg survey, the third straight month shipments exceeded projections. Automakers, also known as original equipment manufacturers, only disclose the number of vehicles sold to Chinese dealers -- instead of consumers.
“We think this is a very dangerous strategy of the OEMs channel stuffing the dealers in the hopes of selling more,” Ole Hui and Jeremy Yeo, Hong Kong-based analysts at Mizuho Financial Group Inc. (8411), wrote in a report yesterday. “We think OEMs are due for payback time and we may see production cuts and thus weaker wholesale sales in” the second half of 2012, they wrote.
Dealers carrying Japanese brands were hit the hardest among the foreign joint ventures, said Feng Han, Beijing-based secretary general of China Auto Dealers Chamber of Commerce, which has more than 2,300 members. Cars made by Volkswagen AG (VOW) and General Motors Co. were the least affected by rising inventory at dealerships, Han said.
Ma Chunping, a spokeswoman for Toyota Motor Corp. (7203)’s joint venture with China FAW Group Corp., said its dealership inventory levels are between 0.7 to 1.2 months. Toyota’s passenger-car partnership with Guangzhou Automobile Group Co. isn’t experiencing any inventory problem, spokesman Chen Daohong said.
Spokesmen at Nissan Motor Co. and Honda Motor Co. didn’t immediately comment.
The automakers association sees the rebound as reflecting an industry recovery from a slump that had kept January-to-April shipments down from a year earlier, Deputy Secretary General Yao Jie said in the association’s briefing June 9. A week earlier, Kevin Wale, head of General Motors Co. (GM)’s China operations, said he’s “pretty optimistic” about Chinese consumer demand.
Inventory worries in China may be overblown, Macquarie Group Ltd. wrote in a report June 11. Auto production lagged wholesales by 40,000 units in May, and carmakers have “little incentive to overstock their dealers with cars that cannot be sold at targeted price points,” analysts Jake Lynch and Zhixuan Lin wrote.
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