Chinese Automakers: Too Many Cars, Not Enough Sales (TM, HMC, GM, F, NSANY, VLKAY)

China’s auto dealers are taking more deliveries of new cars than they can sell. Deliveries totaled 1.28 million vehicles in May, higher than the consensus estimate of 1.22 million and the third consecutive month of increasing shipments of new cars to dealers. But dealers haven’t been able to sell the cars and growing inventories will have to result in either more incentives to Chinese buyers or manufacturers are going to have to cut production.

Toyota Motor Corp. (NYSE: TM) and Honda Motor Co. Ltd. (NYSE: HMC), now fully recovered from the effects of last year’s earthquake and tsunami have sharply increased shipments to dealers. Toyota’s sales are double the company’s total from a year ago, and Honda’s sales are up 92%. General Motors Co. (NYSE: GM) reported sales up 21% in May and Ford Motor Co. (NYSE: F) said sales of passenger cars rose 23%. Nissan Motor Co. Ltd. (OTC: NSANY) sales jumped 20%, and Volkswagen AG (OTC: VLKAY) reported that sales of its upscale Audi brand rose nearly 14%.

But those are shipments to dealers, who have no choice but to take the cars whether they are selling them or not. According to a report at Bloomberg, average inventory at Chinese dealerships now exceeds 60 days, up from more than 45 days at the end of April. Shipments to dealers are up 16% compared with May 2011 and for the first 5 months of this year shipments are up about 5.5%, to 6.33 million units.

Automakers expect the recent cut in interest rates and the reinstatement of government incentives to boost consumer demand. But carmakers are going to have to give dealers some help pretty soon, either in the form of incentives or lower shipments. Stacking up more cars on dealer lots can only improve sales figures for so long.

Paul Ausick