Shanghai (ZXZC)- The Vehicle Inventory Alert Index (VIA) for Chinese auto dealers in May 2024 stood at 58.2%, representing a year-on-year increase of 2.8 percentage points and a month-on-month decrease of 1.2 percentage points, according to a survey released by the China Automobile Dealers Association (CADA).

The inventory alert index is above the boom-bust threshold, indicating that the automobile distribution industry is in a recessionary zone.

According to the principles of PMI (Purchasing Managers' Index) compilation, the inventory alert index is formulated using an expansion index method, with 50% as the boom-bust threshold. Any value below 50% is considered within a reasonable range. A higher inventory alert index indicates lower market demand, greater inventory pressure, and higher operational pressure and risk.

The CADA said in May, due to the May Day holiday and the launch of new cars at auto shows, there was a rapid increase in customer traffic at dealer stores, which helped to meet some of the pent-up consumer demand. Subsidy policies for car replacements in various regions, such as Yunnan province, Zhengzhou city, and Shenzhen city, further stimulated market consumption enthusiasm. Although the full effects of these policies have yet to be seen, the market's wait-and-see attitude is gradually turning into purchasing actions. It is estimated that China’s retail sales of passenger cars in May remained stable compared to the previous month, at around 1.7 million units.

As the mid-year performance evaluation approaches, dealers are motivated to replenish their stock, increasing inventory pressure. Due to significant price fluctuations in the automotive market, the order and transaction cycles have lengthened, slowing down the recovery of funds for dealers, thereby exacerbating financial strains.

Looking at the indices by brand type, in May, the VIAs for luxury & imported brands and joint-venture brands saw slight month-on-month declines of 2.5 and 1.2 percentage points, reaching 60.6% and 56.2%, respectively, while the index for domestic brands climbed 0.9 percentage points from the previous month to 60%.

The CADA added that June is traditionally a low season for the car market. Factors such as the busy farming season, hot weather, and the demand pull-forward effect from May's auto shows have slightly dampened consumer enthusiasm for buying cars. However, as various regions gradually implement subsidy policies for car replacements and with dealers pushing to meet mid-year targets, the overall car market in June is expected to stabilize. Sales are likely to be on par with May and may show a slight upward trend.