Chinese Auto Dealers Hit Panic Button As Tax Hike Triggers "Inventory Early Warning"

With the US automakers facing an "inventory bubble," hope for any momentum rested squarely in the shoulders of China... until today. China Automobile Dealers Association just unleashed their "Inventory Early Warning Alert" for January 2017, citing sales-tax increase on small-engine cars and Chinese New Year holiday.

As we detailed previously, J.D.Power analyst Thomas King warned, 2016 ended with an inventory "bubble" that will require less production or more incentives to clear.

With near record high inventories of 3.9 million vehicles...

 

U.S. auto inventory finished 2016 at about 66 days supply, up from 60 days a year earlier. Inventory would last 2.23 months at the November sales pace, according to the latest available data from the Census Bureau. The stock-to-sales ratio in 2016 is extremely elevated compared to historical norms...

 

And now China Auto Dealers issue a Vehicle Inventory Alert - the index soared most on record by 18.6 percentage points to 61.5%. (A reading above 50% indicates low market demand and high inventories)

The market demand index, average daily sales index, business conditions index chain decreased, of which the market demand index and the average daily sales index chain fell sharply, which is due to the December market overdraft.

The total market demand index was 23.0%, a decline of 51.6 percentage points, a substantial decline in market demand index.

Worse still, China Auto Dealers Association warns that further inventory pressure is expected in February due to holidays and fewer working days.