China, the world’s biggest automobile market is set to witness a fall in prices over the rest of the year due to rising inventories and pressure among wholesalers to meet sales deadlines, a China Daily report said quoting National Development and Reform Commission (NDRC).
Inventory levels reached 55 days supply in June from 43 days at the beginning of the year, according to China Automotive Tech & Research Center.
Due to rising consumer prices, passenger-car deliveries in June recorded the slowest growth in the past 15 months. Since February 2009, vehicle sales saw a continuous rise after slowing in April 2010.
Auto prices have already fallen by 1.18 percent in the first half of 2010, according to the ministry.
While dealers are already offering discounts, automakers are also set to join them, said Cheng Xiaodong, an official with NDRC.
One of General Motors Co’s dealers started offering a 14 percent discount on its 41,800 yuan ($6,170) priced Matiz compact car along with a sales tax refund.
The industry analysts expect the demand to fall in the next six months triggering a price war among the dealers to clear inventories.
"The high prices we saw last year are long gone. Car prices are no doubt coming down," said Yu Bing, an analyst at PingAn Securities Co.
The end of stimulus programs and an increase in sales tax on small cars to 7.5 percent this year from 5 percent in 2009 are expected to retard the sales momentum leading to a cut in prices. Stimulus programs and tax cuts boosted car sales in 2009 to reach 13.6 million units overtaking the US for the first time.
According to a NDRC report, the Chinese government has doled out 7.92 billion yuan ($147.4 million) in the first half of 2010 towards subsidies for automobile purchases made in the rural areas of the country.
Although the rural communities and smaller cities have lower ownership levels compared to the large cities, issues concerning the rural areas such as increasing living costs and high unemployment will do less to keep the demand intact.
Demand for automobiles is likely to fall further with inflation exceeding the government’s target of 3 percent on an average for the year and gross domestic product falling to 10.3 percent in the second quarter from 11.9 percent in the first quarter.
"The uncertainty of the macro-economy will influence people's confidence, leading to a slowdown in auto sales," said Xu Minfeng, an analyst with Central China Securities in Shanghai.
Domestic companies like BYD, Chery Automobiles and others are resorting to production cuts to reduce the pressure on the dealers to clear the inventory.
