CAAM has called on Chinese authorities to introduce financial relief for the dealership sector, saying that price wars have led to a cumulative loss of RMB 138 billion yuan ($19.6 billion) in new car retail sales in the January-August period.
An automotive industry association has suggested that the Chinese government intervene in the ongoing price wars, which have posed serious challenges to dealership operations.
The China Association of Automobile Manufacturers (CAAM) said today that it has submitted an urgent report to the Chinese government on the price wars in the automotive industry, which have caused problems including a break in dealers' financial chains.
CAAM has received feedback from a large number of member companies that the dramatic changes in the auto market brought about by factors such as the ongoing price wars have left auto dealers mired in a quagmire and facing extreme liquidity constraints, according to a statement today.
CAAM has formally submitted an urgent report on the current situation of dealerships facing financial difficulties and the risk of closure after its surveys, and has made policy recommendations, according to the statement.
Currently Chinese auto dealers are facing large losses on new car sales, widespread cash flow deficits and increased risk of capital chain breaks, and are already struggling to get out of the predicament of survival, the report reads.
China's auto dealers are currently facing two major problems, the report said:
First, sluggish consumption and pressure on car companies' wholesale sales have kept dealers' inventories at high levels. To reduce capital pressure and financing costs, dealers are forced to sell at low prices to survive.
Secondly, the price wars make dealers sell below cost, and the more they sell, the more they lose. At the same time, they are facing difficulties in repaying the due financing, and the risk of capital chain breakage increased steeply.
The current liquidity situation of dealers has been compressed to the extreme.
As of August, a measure of the difference between dealers' costs and selling prices had reached 22.8 percent, widening by 10.7 percentage points from the same period last year, CAAM said, citing a third-party report.
In August, the overall discount rate for new cars in China stood at 17.4 percent, CAAM said, adding that price wars have led to a cumulative loss of RMB 138 billion yuan ($19.6 billion) in new car retail sales in the January-August period, which has had a major impact on the industry's healthy development.
This year, reports of auto dealers in trouble have appeared many times, and the reasons are mostly due to liquidity problems and not directly related to the dealers' own operations, CAAM said.
CAAM called on government authorities to pay attention to the current financial difficulties and closure risks faced by the auto dealership sector, and to take phased financial relief policy measures to prevent systemic risks in the sector.
CAAM calls on the government to act as soon as possible to study and introduce phased financial relief policy measures for the automobile dealership sector, including:
First, the government should initiate research on the financial environment of the automobile dealership sector to understand the financial needs of dealers, and study and formulate policies to support financing in the automobile dealership sector.
The government should guide financial institutions to increase their support for the automobile dealership sector and enhance the function of financial services circulation.
Secondly, financial institutions and automobile dealers should work together to promote the stability of the automobile market, allow flexible rollover and continuation of existing loans, and gradually increase the credit limit for dealers and broaden the scope of loan use.
Policy banks should be encouraged to set up special credit policies for auto dealers.
($1 = RMB 7.0582)
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