BEIJING (Bloomberg) -- Chinese car dealers are struggling with a rising number of unsold cars that threaten to deepen price cuts, according to the nation's biggest automobile dealers' association.
Dealerships for carmakers Honda, Chery, BYD and Geely carried more than 45 days of inventory as of the end of April, exceeding the threshold that leads to heavy price cuts, Su Hui, vice president of the auto-market division at the state-backed China Automobile Dealers Association, said in an interview.
The warning shows that vehicle deliveries reported by companies, which have risen more than analysts' estimates for the past two months, aren't fully translating to consumer sales and are leading to a pile up at showrooms.
Demand in the first four months was the slowest since 1998, weighing on automakers from General Motors to Volkswagen who are counting on the world's largest auto market to offset slumping sales in Europe.
"Unsold cars are crowding dealer lots in cities from Guangzhou in the south to Xi'an to the west," Su said in a phone interview on Thursday from Beijing. "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 Trade Co., China's second-largest auto dealer by market value.
Honda shut down
Honda's Chinese joint-venture factory with Guangzhou Automobile shut down for 16 days for the Labor Day public holiday and line maintenance, according to the Japanese automaker.
"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," Scott Laprise, Beijing-based analyst at CLSA Asia Pacific Markets, said in a May 11 report.
Honda President Takanobu Ito said on Thursday at an event in Tokyo that he wasn't too concerned about China because the market still has room to expand. Executive Vice President Tetsuo Iwamura said at the same event the automaker's inventory levels in China are "appropriate" and "aren't too big of an issue yet."
China's total vehicle sales declined 1.3 percent in the January-to-April period to 6.42 million, the worst showing since 1998 when deliveries fell 1.6 percent, according to China Association of Automobile Manufacturers data, as slowing economic growth and rising fuel prices dented consumer demand.
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 said.
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.
"There's pretty big pressure on auto dealers and automakers to cut prices," said NDRC's Cheng. "Car demand is not rigid and is easily undermined by macro-economic conditions and the cost of owning cars."
China's economic growth is forecast at a 13-year low after reports showed April industrial production and trade grew less than estimated.
Steeper discounts bode well for consumers shopping for their next car. "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."