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As auto inventories pile up, dealers decry sales targets
By Lu Nengneng |
August 22, 2012, Wednesday
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Print Edition
Print Edition
WHILE China's car market continues to show signs of stabilizing, dealerships are struggling to clear inventory backlogs and asking automakers to ease up on difficult sales targets.
Sales of passenger cars and commercial vehicles in China in July increased 8.2 percent from a year earlier to 1.38 million units, lifting combined sales in the past seven months by 3.6 percent to just under 11 million units.
The market has indeed come a long way from its double-digit sales decline in January, but it has also entered what is traditionally a slow season. The July sale pace eased from 9.9 percent year-on-year growth in June and from 16 percent expansion in May.
Inventories are piling up. Unsold cars in July rose 6.9 percent from July to 736,300 units, following a 5.5 percent decline in June.
According to a survey of more than 1,000 dealerships by the China Automobile Dealership Association, up to 10 car brands - including five domestic ones - had inventory-to-sales ratios surpassing the "danger-level" benchmark of 2.5 at the end of June. In some extreme cases, the ratio shot to up to 8.
Rao Da, secretary-general of the China Passenger Car Association, warned of oversupply back in June. He advised carmakers that expanded production capacity during the recent boom years of auto sales should ratchet down manufacturing amid cooling demand this year. "They cannot just pass on their own inventory pressures to dealerships," Rao said. "Car dealers suffering from sluggish sales have no choice but to either take out loans or cut prices to improve their cash flow."
Weak performance
A survey by Beijing-based market research firm Lansion last month showed nearly 70 percent of dealerships are dissatisfied with their business performance this year. Only 13.9 percent said they were confident of meeting sales targets set by automakers.
In an open letter published last week, the China Auto Dealers Chamber of Commerce, speaking on behalf of cash-strapped, overstocked car dealerships, urged passenger car manufacturers to put the interests of the industry as a whole before their own profit considerations.
"Automakers who force dealers to take more stock seem to have passed on their own inventory risk elsewhere," it said. "But dealerships, left in a cash-tight situation, are likely to be forced into short-sighted and speculative responses 鈥 which may leave consumers with the impression of car brand dishonesty."
After rising for six consecutive years, overall customer satisfaction with new car sales service at dealerships in China has fallen slightly for the first time this year, according to a report published last month by market research firm J.D. Power Asia Pacific. Price wars could squeeze out the margins of dealerships and leave them with no money to improve their services, while unreasonable sales targets could lead to distorted sales figures, which prevent carmakers from evaluating market demand accurately, the chamber said. That should be the top concern of carmakers.
Sales of passenger cars and commercial vehicles in China in July increased 8.2 percent from a year earlier to 1.38 million units, lifting combined sales in the past seven months by 3.6 percent to just under 11 million units.
The market has indeed come a long way from its double-digit sales decline in January, but it has also entered what is traditionally a slow season. The July sale pace eased from 9.9 percent year-on-year growth in June and from 16 percent expansion in May.
Inventories are piling up. Unsold cars in July rose 6.9 percent from July to 736,300 units, following a 5.5 percent decline in June.
According to a survey of more than 1,000 dealerships by the China Automobile Dealership Association, up to 10 car brands - including five domestic ones - had inventory-to-sales ratios surpassing the "danger-level" benchmark of 2.5 at the end of June. In some extreme cases, the ratio shot to up to 8.
Rao Da, secretary-general of the China Passenger Car Association, warned of oversupply back in June. He advised carmakers that expanded production capacity during the recent boom years of auto sales should ratchet down manufacturing amid cooling demand this year. "They cannot just pass on their own inventory pressures to dealerships," Rao said. "Car dealers suffering from sluggish sales have no choice but to either take out loans or cut prices to improve their cash flow."
Weak performance
A survey by Beijing-based market research firm Lansion last month showed nearly 70 percent of dealerships are dissatisfied with their business performance this year. Only 13.9 percent said they were confident of meeting sales targets set by automakers.
In an open letter published last week, the China Auto Dealers Chamber of Commerce, speaking on behalf of cash-strapped, overstocked car dealerships, urged passenger car manufacturers to put the interests of the industry as a whole before their own profit considerations.
"Automakers who force dealers to take more stock seem to have passed on their own inventory risk elsewhere," it said. "But dealerships, left in a cash-tight situation, are likely to be forced into short-sighted and speculative responses 鈥 which may leave consumers with the impression of car brand dishonesty."
After rising for six consecutive years, overall customer satisfaction with new car sales service at dealerships in China has fallen slightly for the first time this year, according to a report published last month by market research firm J.D. Power Asia Pacific. Price wars could squeeze out the margins of dealerships and leave them with no money to improve their services, while unreasonable sales targets could lead to distorted sales figures, which prevent carmakers from evaluating market demand accurately, the chamber said. That should be the top concern of carmakers.
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