BYD dealers quitting on high inventory: report

Dealers are leaving the sales network of Chinese carmaker BYD Co Ltd because of sluggish sales, local media reported on Monday, a new setback for the high-flyer backed by U.S. investor Warren Buffett after it posted weak quarterly results.

Several BYD dealers in Beijing and other areas had pulled out of the carmaker's network in recent months, following in the footsteps of Ping Tong, its flagship dealer in the southwestern city of Chengdu, the China Business News reported.

Ping Tong, set up in June last year, sold 1,500 of BYD's F0 car that year, but its inventory for the model surged to as high as about 1,000 units a year later, locking up more than 35 million yuan ($5.15 million) as BYD continued to ship cars despite a market slowdown, the report said.

"The growth of car sales in China will continue to slow down and the high inventory of BYD with dealers should take some time to digest," said Alfred Chan, chief dealer at Cheer Pearl Investment Ltd.

Fast expansion of BYD's sales network was also blamed for the closure of BYD dealers in Chengdu and other provinces, including Zhejiang, Shandong and Henan.

China surpassed the United States last year to become the world's largest auto market, as sales took off fueled by a raft of policy incentives from Beijing to boost consumption during the global economic slowdown.

But that growth is expected to come down to more normal levels in the second half of the year as Beijing takes steps to cool a racing economy.

BYD has about 14 dealerships in Chengdu, while the best performer in the city, Shanghai Volkswagen, has 13. Shanghai Volkswagen is a car venture between Volkswagen AG and Chinese top automaker SAIC Motor Corp Ltd.

"Because of high inventory levels, many dealers are competing to cut prices. We were forced to sell cars even at a loss," the China Business News quoted an unnamed BYD dealer as saying.

Normal inventory is equivalent to sales for 1- months, analysts said, while BYD's inventory could double that level.

BYD Chairman Wang Changfu called the report of high dealer turnover exaggerated, saying that churn rates were at normal levels.

Speaking to reporters on Monday after the company reported disappointing second-quarter results, he said the company, which previously cut its 2010 sales target to 600,000 units from a previous target of 800,000, was prepared for a slowdown in China's auto market in the second half of the year.

Shares of BYD, 10 percent owned by Buffett's Berkshire Hathaway, were down 3.2 percent by Monday's midday trading break after its quarterly earnings came in below market expectations.

On Sunday, BYD reported a 2.6 percent rise in second-quarter net profit, but it fell substantially from the previous quarter as China's booming car sales lost steam in a slowing economy.

Goldman Sachs on Monday cut its 2010 earnings estimates for the carmaker by 12 percent to 4.33 billion yuan ($637.7 million) on weak margins caused by lower volume and higher price cuts.

However, its 34 percent share price decline this year appeared to have priced in these concerns, brokers said.