Two days ago, Bloomberg brought harrowing news:
“Chinese dealers are struggling with the rising number of unsold cars that’s threatening to deepen price cuts. Dealerships for Honda Motor Co., Chery Automobile Co., BYD Co. and Geely carried more than 45 days of inventory as of the end of April, exceeding the threshold that foreshadows debilitating price cuts.”
Automotive News made the matter the opener of its Friday video newscast. Apparently, the sky is soon to fall in China. The situation is even more dramatic elsewhere. (Read More…)
Third quarter North American auto production is headed for the 11.8m mark, even as analysts at IHS Automotive revise their sales projections downwards to 11.5m, once again raising the specter of oversupply which haunted Detroit for much of the last decade. GM, which is forgoing a Summer plant shutdown this year, is expected to increase its Q3 production by 32 percent over last year, as its market estimate ranges from 11.5 to 12m units according to Automotive News [sub]. Though that’s on the high end compared to the IHS number, and though GM’s market share has been anything but stable, the firm is keeping a steady hand on the tiller to maintain a sense of normalcy headed into its forthcoming IPO. And with inventories in far better shape than they’ve been in years, automakers reckon they can always get rid of extra cars when the market rebounds next year. In the meantime, however, the risks of overproduction are very real.
Anywhere there’s a gold rush, competitors have to worry about getting caught on the bust-end of a boom-bust cycle. With the growth of China’s car market projected to roll all the way to about 20m units annually, automakers hoping to cash in on booming sales have to wonder whether their investments in Chinese capacity will actually be used efficiently. And, as the European market is learning, government consumer incentives can also inflate projections, only to create a collapse in demand after they are phased out. These factors have combined to create a bit of a panic about the possibility of a Chinese-market oversupply, as financial analysts start reigning in automakers’ rampant Sino-optimism.