Car Manufacturers Adjust to Slumped Chinese Markets

This past June the Chinese car industry experienced a “Double Down” and that means that both the production and sale of cars dropped in China, the world’s largest automobile market. The consequence has global car manufacturers scrambling to recover costs, as they now consider what they need to with their excess fleet in Chinese show rooms.

In a month-on-month comparison, car production fell in China by 5.3% and sales were down by 6.1%.For the year on year comparison, that is a fall of 0.7% and 3.4%, respectively. The slump is largely attributed to sharp declines in Chinese equity markets and a devaluation of the Yuan. According to economists, this is likely to be a sustained slump as these factors do not appear to be easing any time soon.

With a significant excess fleet in China, German car manufactures such as Daimler AG's Mercedes-Benz brand, BMW AG and Volkswagen AG's Audi brand are considering exporting vehicles from China to the US to absorb the short-term cost of production cuts, particularly if the market continues to deteriorate.

The situation this past June certainly did not fuel a great deal of hope. The fall in car sales was the lowest it had been in more than two years, with signs that it is only going to drop further. According to the China Association of Automobile Manufacturers (CAAM), the government-backed trade group, Inventories were up 6.6% last month. For the industry watchdog that’s alarming, where their advised warning level of inventory is 45 days, dealers were reporting carrying vehicles for more than 50 days.

Despite these concerns, many global automakers have significant manufacturing operations in China that they would like to maintain even despite these depleting numbers. Industry executives still have confidence that China is ostensibly a growth market and that it is good sense to keep infrastructure, as over the long haul the market will improve.