In January, the Chinese government had warned its (mostly government-owned) car companies to go easy on capacity expansion. Car sales in China were expected to show more sedate numbers than last year’s torrid growth rate of 45 percent. Sales did not follow government orders. In the first four months of 2010, Chinese car sales grew 60.51 percent. Now finally, the government can say “we told you so.” China’s car dealers sit on a mountain of unsold cars.
Case in point: Brilliance. The Chinese auto maker “has started to face oversupply problems,” says Gasgoo, “with some of its dealers seeing inventories rising in excess of one-and-a-half months.”
To clear the inventory, Brilliance employs the expected: Discounts, combined with higher sales targets for their dealers.
Brilliance can find dubious solace in the fact that they are not suffering alone. “The oversupply problem with Brilliance Auto is just a reflection of an issue dogging the entire sector within the country,” says Gasgoo. During the first four months of the year, 6.17m units were moved. However, by end of April, car makers and dealers found themselves sitting on a pile of one million unsold units, reported state news agency Xinhua.
China’s car makers find themselves in a quandary. If they don’t make enough cars, they lose market share. If they don’t sell enough cars, they lose their shirts. The mountain of unsold cars grows while capacity is added. Something will give, and it’s most likely smaller makers like Brilliance.