Car dealers see market shift to lower gear

As the economy cools, sales are falling off and inventories are growing at dealerships

Car dealers nationwide have begun to experience life in the slow lane after government policies to spur sales ended last year.

Also putting the brakes on sales were ownership restriction rules starting in late 2010 that were intended to ease traffic congestion in cities such as Beijing and Guangzhou. In addition, the economy has slowed this year, exacerbating the plight of dealers.

"For some car brands, we have inventories on hand of up to four months worth of sales," Pang Qinghua, chairman of Pang Da Automobile Trade Co. Ltd. said. "The normal stockpile lasts for one and a half months."

A survey by the government-affiliated All-China Federation of Industry & Commerce showed that the inventories of 400 dealerships around the country in June were up an average 22.24 percent compared to the figure for January.

"The situation for car dealers is worse than during the global financial downturn in 2008," Li Yan, of Pang Da Automobile, said.

In the past, Pang Da has pursued fast expansion, but it has stopped opening new dealerships.

"Considering price, it is a good time to acquire other sales offices, but we are not willing to do so because we don't know how long the situation will last," Pang said.

There have been media reports said that several dealerships have closed in Beijing and smaller dealers have closed in Shanghai.

"The winter of car dealers has come," a source in investment banking said. "Up next will be a new wave of mergers and acquisitions."

The days of car dealers enjoying hefty profits are gone forever, industry insiders said.

The sector has become a buyer's market, said Chi Yifeng, president of Beijing Beichen Yayuncun Car Trade Market, which hosts several dealerships. "It is unprecedented that Guangqi Honda Automobile Co. Ltd., a joint venture in Guangzhou, lost money on its whole range of models last year."

The slowdown has car dealers looking for answers. Some are putting effort into rental, financing, insurance and maintenance, a report by the China Automobile Dealers Association, an industry organization in Beijing, said.

Also as residents in the rural areas are increasingly able to afford a car, dealers are setting up branches in small cities.