An increasing number of small-scale dealers are suffering losses after discounting cars to boost sales, says Feng Jian, deputy general manager of Pang Da, China's second-largest auto dealer.
Honda's joint venture factory in China shut down for more than two weeks for the Labour Day public holiday and line maintenance, the Japanese carmaker said.
The stoppage prompted CLSA Asia Pacific Markets to cut its recommendation on Honda's partner, Guangzhou
"While we had expected a poor first half, we did not expect to see the market deteriorate so fast that the Honda JV needed to close the factory for 16 days, said a CLSA analyst in Beijing, Scott Laprise.
Honda president Takanobu Ito said this week he wasn't too concerned about China because the market still had room to expand.
Chinese luxury auto dealers China ZhengTong and Baoxin, last week cancelled plans to sell dollar-denominated bonds as yields on Chinese debt in the US currency surged the most since September.
China's total vehicle sales declined 1.3 per cent in the January-to-April period, the worst showing since 1998 when deliveries fell 1.6 per cent, according to figures compiled by the China Association of Automobile Manufacturers.
Demand has been dented by slowing economic growth and rising fuel prices.
GM, the world's largest automaker, says its sales growth accelerated last month as demand for its Wuling minivans offset a drop in Chevrolet deliveries.
While the Wuling helped push total growth to 12 per cent from 11 per cent in March, Buick sales growth slowed to 1.7 per cent from a year earlier and demand for Chevrolet vehicles shrank 6.2 per cent.
Inventory levels at automakers rose 3.3 per cent to 757,400 units at the end of April, the highest in at least 16 months.
Dealerships were holding at least the equivalent in stock, said Cheng Xiaodong, who oversees auto price monitoring at the National Development and Reform Commission, the nation's top economic planner.
The monthly NDRC survey of 36 Chinese cities showed average car prices fell 1.9 per cent last month from a year earlier in the fourth consecutive decline this year.
"There's pretty big pressure on auto dealers and automakers to cut prices," said Cheng.
"Car demand is not rigid and is easily undermined by macroeconomic conditions and the cost of owning cars."
Pacific Investment Management, which oversees the world's largest bond fund, said this month that China's economic growth may slow to the "mid-7 per cent range", a pace unseen since 1999.
Citigroup and JPMorgan Chase & Co economists cut their estimates for China's economic expansion after April industrial production and trade grew less than estimated and renewed European debt turmoil roiled markets, prompting authorities on May 12 to cut the reserve ratio for the third time in six months.
Steeper discounts bode well for buyers shopping for their next drive.
"The auto consumer is becoming very price sensitive and appears to be buying only if there is a good deal," said Ole Hui, an analyst for Mizuho Securities Asia in Hong Kong.
- Bloomberg
