Inventory levels up again but demand rise expected

Tax relief on small-engine cars forecast to boost vehicle sales

China's auto dealers saw their inventory levels rise again in September in the world's largest auto market.

The Vehicle Inventory Alert Index compiled by the China Automobile Dealers Association stood at 55.7 percent in September, hovering above the alert level of 50 percent.

The index is based on a survey of more than 1,000 authorized stores in China that sell 55 brands of vehicles , both Chinese and foreign.

The rebound came after a short respite for auto dealers in August, when the index stood at 48.7 percent. Prior to that, the index had been above the alert level for 10 consecutive months.

The rebound is because of two major reasons, said Xiao Zhengsan, secretary-general of the association. Some dealers increased their stock as customer demands usually rise in September and October, while some automakers, to ensure their sales targets, pressured other dealers to purchase more vehicles.

Many customers were also on holiday during the parade held in September to mark the 70th anniversary of the end of World War II, thus weakening customer demand, said Lang Xuehong, deputy secretary-general of the association.

Things are expected to improve in the coming months as the State Council has released tax deduction policies to encourage the purchase of cars with engines of 1.6-liters or below, Lang said.

The State Council decided in late September that taxes on such vehicle purchases will be halved for buyers from Oct 1 and will run till the end of next year.

Lang estimates the policy will generate sales of about 1.2 million vehicles.

She also expects customer demand will rise in October as regional auto shows are organized and discounts offered.

Despite a possible change for the better, industry insiders said that in the long run, dealers should adjust their business model to ensure profits as the rapid sales growth of previous years has passed.

Sales slump

China's auto industry has been experiencing a major slump in sales growth. Vehicles sold in the first eight months of the year totaled 15 million units, zero growth year-on-year.

Some industry experts recommend dealerships expand their business in after-sales service, second-hand vehicles and financial services to diversify their sources of profit.

The association's statistics show 6.1 million second-hand vehicles were traded in the first eight months of 2015, a 5.49 percent rise year-on-year.

Though that growth is lower than expected, the trend will not change, said Shen Rong, the association's deputy secretary-general.

He said at least 10 million second-hand vehicles would be traded this year.

lifusheng@chinadaily.com.cn

(China Daily 10/12/2015 page19)