China's auto demand falling to more solid ground

By: Lei Xing   2010-07-12

As the weather gets hotter in China, the automobile market seems to be going in the opposite direction.

China remains as the world's leader in new automobile production and sales in the first half of 2010, with output reaching 8.5 million and sales (registration) 7.2 million, according to statistics released by China Automotive Technology & Research Center (CATARC) (see p. ??).

Monthly sales fell for the third consecutive month in June after a peak was reached in March, as the market seems to have reverted to its traditional seasonal pattern. Microvans, for example, have taken a major hit. The vehicle of choice in many rural areas benefited greatly from the government stimulus policies last year sold nearly two million units. But so far this year, sales of the microvan have been declining and its growth rate fell to single digits in June. 

CATARC warned that the country's automobile inventory is approaching unhealthy levels as consumer demand cools off. The average dealer inventory level for OEMs, according to an industry source, increased to 1.2 months in the third week of June. For some OEMs, the inventory level was as high as 1.8-2.2 months.

While demand seems to be shrinking by looking at the numbers, there have been reports that many consumers in China have either to wait for delivery of some models or pay an extra fee to speed up delivery of their orders at dealerships. The practice of so-called "hunger" marketing has been more rampant this year for some vehicle models.

A local automotive internet site that features community forums reports that if you were to order a locally made Audi Q5 in Shanghai, the wait is till next April for the delivery with a down payment of ¥50,000 ($7,353). There was also report that at some dealerships in Beijing, customers were asked to pay an extra ¥3,000 as "surcharge" on a Chang'an-Suzuki Alto for immediate delivery. The model retails at only between ¥30,000 and ¥40,000.

In a recent program aired on FM103.9, Beijing's popular traffic radio station, an "insider" from an unidentified OEM revealed that in some automaking companies, especially those that produce popular models in high demand, it has become a normal practice to intentionally withhold their inventory as a "hunger" marketing gimmick to charge consumers more. 

While overall market demand is falling according to the latest statistics, the many dealer "hunger" marketing cases indicate to a fundamental demand of automobiles by a growing number of consumers. Although China is no longer able to duplicate last year's market growth rate of 46 percent, the market stands to entertain 10-15 percent growth in 2010, still the envy of the world.