Only 30% Chinese dealerships make money, automakers adjust capacity amid expanding worker’s vacation

Following the official selling price reduction, automakers now seek ways to cut high inventory in order to stabilize the auto market in China. Automakers including FAW-VW and other joint-venture in the south of China, have expanded the length of the high-temperature vacation for plant workers from around 4 days to half a month to alter capacity.

Additionally, Lexus and Beijing Hyundai have announced to adjust annual production target to relieve the pressure of dealerships. Though the long vacation might affect the sales performance of the third quarter, it will promote the healthy development of the overall market.

On the other hand, the price reduction “war”, which had been triggered by the high inventory, will be stemmed, so that dealers can recover its profit.

The overall sales of vehicle in China decreased 7.1 percent from a year earlier to 1.5 million units, a record decrease since February in 2013. Among the top ten automakers for passenger vehicle sales in the first seven months of the year, half of them decreased compared with the same period of last year. In particular, the top three experienced sales slump of 20% to 30% on a year-on-year basis.

Dealerships also experienced deficit contributed by sales slump. According to statistics from China Automobile Dealers Association, only 30 percent of the dealers managed to keep balance or make money in the first seven months in China. The proportion in the same period of 2014 was 40 percent, and in 2010 reached 70 percent.

To save dealers in the recession, automakers offered them subsidies while cutting vehicle’s official selling price. The high inventory is the next difficulty to be conquered.

Chinese vehicle dealers had expanded rapidly since 2010, having doubled in the past five years to 26,000 units. But, 18,000 of them didn’t make money. This reveled the side effect too fact growth and the misjudgment of the market situation of Chinese dealerships.