Passenger Vehicle Market Faces Inventory Pressure

China's auto market is expected to see price cuts in August as dealers are seeing growing inventories due to the continuous sales decline since April.

The China Automotive Industry Climate Index declined after rising three quarters, showing a drop in industry confidence, according to China Business News. The index is jointly released by the National Bureau of Statistics and Sinotrust.

According to the China Association of Automobile Manufacturers (CAAM), China's auto sales reached 9 million units in the first half of the year, up 47.7 percent year-on-year. But in June, domestic auto production was at 1.39 million vehicles, down 1.84 percent and sales were at 1.41 million, down 1.83 percent from the previous month. Auto sales have seen month-on-month declines for the third consecutive month.

China's auto inventory reached 1.29 million this month. The inventory cycle for dealers rose to 55 days by the end of June from 41 days in February, approaching the upper limit.

Domestic auto maker BYD sold 300,000 cars over the first six months, less than half of its annual target of 800,000 units. Meanwhile, dealers from international auto giants including Toyota, Volkswagen and General Motors are not optimistic on the sales outlook for the second half and believe that companies will start to cut prices.

Cui Dongshu, deputy secretary-general of China's National Passenger Car Association, also expected that the auto market will see fiercer price competition starting from August.

In an earlier interview with Caixin, Xiong Chuanlin, deputy secretary of CAAM, said that China's auto market is experiencing abnormally rapid growth, adding that a decline is likely to show in the second half.

Shanghai Securities News reported that during a recent auto show in Changchun between July 15 and 22, a number of auto companies including FAW Toyota have started price cuts to stimulate sales, while others have launched new models at lower-than-anticipated prices.