China's new vehicle stockpile reaches 4-year high

July 18 (Bloomberg) -- China's stockpile of unsold new vehicles rose about 50 percent in the six months ended June, hitting a four-year high, as automakers expanded production and sales growth slowed.

The backlog reached 170,000 vehicles from about 110,000 at the end of last year, Cheng Xiaodong, head of vehicle-price monitoring at the National Development and Reform Commission, said by phone today. Sales prices also fell about 3 percent in the first half from a year earlier, he added.

China's vehicle sales growth slowed to 19 percent in the first half as inflation and natural disasters tempered demand. General Motors Corp., Toyota Motor Corp. and other carmakers boosted capacity in China 23 percent last year, as they seek to offset slumping demand in the U.S., Europe and Japan.

"Automakers were too optimistic when planning their capacity expansion and didn't expect the slowdown," said Tang Jun, an analyst at Guangfa Securities Co. in Guangzhou. "Dealers are hit the most by rising inventory and may have to slash prices further to help with liquidity."

New Models

Automakers have ramped up production, slashed prices and debuted new vehicles in a bid to win market share. About 80 new and revamped models were added in the first half, Cheng said. The figure will likely fall to 40 in the second half, he added.

"Automakers were competing in capacity expansion," Cheng said. "The situation may improve in the second half with fewer new models entering the market and rising demand."

China's vehicle stockpile peaked at about 200,000 at the end of June 2004, Cheng said.

The country's auto production capacity may increase 17 percent this year, according to an estimate by the China Association of Automobile Manufacturers.

Toyota, the world's largest automaker by value, is spending 3.6 billion yuan ($524 million) to more than double the capacity of a factory in Chengdu to 30,000 vehicles, it said on July 5. The work, which also includes moving the factory, will be completed by the first half of 2010.

Volkswagen AG, the largest overseas carmaker in China, plans to boost its capacity in the country from 1.08 million vehicles a year through efficiency improvements, it said earlier this month. The company took over a former Fiat SpA plant in Nanjing in April.

Chinese drivers bought 5.18 million cars, trucks and other vehicles in the first half. Sales growth slowed from 23 percent a year earlier.

First-half sales of light trucks and cars plunged 10 percent to 7.4 million in the U.S., the world's largest auto market, as higher gasoline prices and rising job insecurity crimped demand. New car registrations in the European Union fell 2.7 percent.