Warning on inventory removed on effective measures taken by car enterprises in China

Gasgoo.com (Shanghai September 15) The high inventories car dealers suffered for ten months have finally decreased, and the car market is showing signs of bottoming out and recovering.

According to data published by China Automobile Dealers Association (CADA), the early warning index of inventory of car dealers in August was at 48.7%, 4.7 percentage points lower month on month and 1.6 percentage points lower year on year, reflecting decreasing inventories.

Retail sales data issued by China Passenger Car Association (CPCA) showed that retail sales growth of passenger cars dropped from 5% in May to -1% in June and July, and then retraced up to 2.7% in August, meaning that the market is recovering.

Nevertheless, wholesale volume in car market still dropped a bit. In spite of U-type trend of inventory and retail sales up to August this year, car market may start a new norm of growing slightly instead of rapidly in the long term.

The inventory adjustment measures starts to take effect

Lang Xuehong, Vice Secretary General of CADA, said that demand increased in August, and average daily sales achieved by dealers also rose. Song Tao, Vice Secretary General of CADA, believed how well dealers are running their business directly reflects market conditions. Last year, CADA warned dealers to be prudent, and those enterprises that made adjustments to production and sales plan for this year is doing relatively better.

Liu Zhifeng, Deputy General Manager of Beijing Hyundai, admitted that they set the sales goal at 1.12-1.16 million units for this year, only 40,000 units higher than last year’s sales of 1.12 million units. But the good news is that the inventory has dropped to normal level as they made adjustments since March, and auto registration rate increased by 9% month on month and 3% year on year, reflecting growth of car market.

Chen Xi, General Manager of Citroen, also noticed such growth. He also said that inventory at Citroen also declined due to previous adjusting measures, and the company also supports de-stocking of dealers.

CPCA pointed out producers did their best to cut the production since June to ease the pressure of dealers as end demand was decreasing rapidly, and according to the data in August, that has taken effect. But inventories at some dealers were still high.

Bullishness and slight growth co-exist

According to Lang Xuehong, in the short term, car market is recovering, but in the long run, there will be a new norm of slight growth.

Related data showed that though dealers had fewer profits year on year, but current situation is significantly better than that of H2 2014. Now inventory levels are balanced on low demand as inventories at producers decreased by 30,000 units in July to August, 2015, and inventories at dealers decreased by 110,000 units. Thus CADA predicted better business in September on anticipation of growing demand.

But the consensus has been reached between industrial association and car enterprises that car market will see a new norm of slight growth. According to Liu Zhifeng, the car market growth rates will be maintained at 3%-5% to 5%-6% or 3%-4%, but not above 10%. Chen Xi is more confident in market outlook though he also agreed the car market may undergo a slight growth at first.

No matter what the future market will be like, the inventory and retail sales date seen in August brought the car market some light.