Are you “shorting” BMW’s stock yet? According to Bloomberg, Chinese dealers are struggling with the rising number of unsold cars that’s threatening to deepen price cuts. Apparently, demand for cars was the slowest in the first four months since 1998.
“Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi’an to the west,” a China Automobile Dealers Association representative told Bloomberg. “It’s like a contagious disease that will spread.”
An increasing number of small-scale dealers are suffering losses after discounting cars to boost sales, according to Feng Jian, deputy general manager of Pang Da Automobile, China’s second-largest auto dealer by market value.
Still according to Bloomberg:
Honda said its joint venture factory in China had shut down for 15 days for the Labor Day public holiday and line maintenance.
“While we had expected a poor first half, we did not expect to see the market deteriorate so fast that the Honda JV needed to close the factory for 16 days,” said an analyst.
Inventory levels at automakers rose 3.3 percent to 757,400 units as of the end of April, the highest in at least 16 months, CAAM data show. Dealerships are holding at least the equivalent in stock, according to Cheng Xiaodong, who oversees auto price monitoring at the National Development and Reform Commission, the nation’s top economic planner.
The monthly NDRC survey of 36 major Chinese cities showed average car prices fell 1.9 percent in April from a year earlier, a fourth straight decline this year.
Steeper discounts bode well for consumers shopping for their next drive.
“The auto consumer is becoming very price sensitive and appears to be buying only if there is a good deal,” said Ole Hui, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “Pricing is definitely on a structural downtrend.”