The automotive market demand is recovering, with the dealer inventory warning index dropping to 55.4% in May.

On May 31, the China Automobile Dealers Association released the latest "China Auto Dealer Inventory Warning Index Survey," revealing that the index for Chinese auto dealers stood at 55.4% in May—down 1.4% year-on-year and 5.0% month-on-month, falling to its lowest level for January-May in nearly two years.

Image source: China Automobile Dealers Association

As the intensity of the price war gradually subsides, consumer wait-and-see sentiment has eased. Additionally, during the short "May Day" holiday, some local governments and manufacturers introduced temporary subsidies, while local auto shows also provided a strong boost to the short-term market, helping May achieve a solid start.

Image: CPCA

According to the latest data released by the CPCA, the market experienced a sharp surge in the first two weeks of May, with retail sales increasing by as much as 67% year-on-year in the first week and 44% in the second week. However, perhaps due to the strong demand release at the beginning of the month, foot traffic and order volumes at dealerships gradually weakened in the latter half of May, causing market enthusiasm to cool down steadily. Overall, May’s auto market performance remained relatively solid. CPCA data shows that from May 1 to 28, passenger car retail sales reached 1.392 million units, representing a 19% increase compared to the same period last year. Meanwhile, new-energy vehicle retail sales hit 483,000 units, soaring 82% year-on-year.
The positive trend in the auto market is also clearly reflected among dealers: Looking at the various sub-indices, dealer inventory and employment indices declined month-on-month in May, while the market demand, average daily sales, and business condition indices all rose. As automotive market demand recovers, dealers’ profitability has improved somewhat.

Image source: China Automobile Dealers Association

In addition to the various consumer-boosting policies introduced during the May Day holiday, the transitional policy allowing dealerships to continue selling China VI B non-RDE vehicles has also provided temporary relief from pressure. On May 8, the Ministry of Ecology and Environment, along with the Ministry of Industry and Information Technology and three other departments, jointly issued the "Announcement on Matters Relating to the Implementation of China VI Emission Standards for Vehicles," officially announcing that the Phase 6b emission standards would be fully enforced nationwide starting July 1, 2023. However, for certain light-duty vehicles meeting the China VI B standard but whose Real Driving Emissions (RDE) test results were classified as "monitor-only," a six-month sales transition period has been granted, permitting these models to remain available for sale until December 31, 2023. This policy has significantly improved both dealerships' and customers' price expectations, leading to a robust recovery in market demand.
However, despite some improvement in dealer orders and sales volume, the Auto Dealers Association index reveals that aggressive discounts on new vehicles have led to declining gross margins per vehicle, leaving dealers under considerable pressure. Additionally, as dealers approach the halfway point of their annual performance targets, they are increasingly motivated to replenish inventory, exacerbating cash-flow challenges. As June draws near, the Auto Dealers Association notes that, driven by pent-up demand from May coupled with rising temperatures, the overall auto market is expected to stabilize in June, with sales likely remaining roughly flat compared to May—or even seeing a slight uptick. (This article is sourced from Gasgoo.com.)

Translated from Sina Auto

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