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China's Car Dealers Ask Government to Stimulate Slumping Auto Sales

China's Car Dealers Ask Government to Stimulate Slumping Auto Sales

(Bloomberg) -- China’s car dealers urged the government to stimulate auto demand as soon as possible to help end a historic slump that’s now approaching the one-year mark.

The government could spur demand by making the switch to new stricter emissions standards more transparent, the China Automobile Dealers Association told regulators. A lack of clarity regarding the transition has hindered dealers’ ability to plan ahead and prompted consumers to delay purchases, CADA said in report dated May 24.

Dealerships are hurting along with carmakers as a slowing economy, a trade war with the U.S. and changes in consumption trends weigh on demand. Car sales in China, the world’s biggest market, plunged for an 11th month in April.

Auto dealers also called for a three-month transition period to the stricter standards to help them deal with the stockpile of cars produced under the current rules. In areas where the new standards will take effect, automakers should immediately stop supplying dealers with vehicles that don’t meet the new criteria and commit to buying such vehicles back after July 1 when the new rules kick in, CADA said.

The average profit margin on selling a new vehicle shrank to 0.4% last year in China, and 39% of dealers posted losses, CADA said in a separate report dated May 29. Dealers’ gross margins on new models are generally negative this year, except for a few brands, leaving the retailers under “unprecedented pressure,” CADA said.

Dealers are holding more than 3 million unsold cars -- equivalent to two months’ sales -- and they have 500 billion yuan ($72 billion) tied up in inventory, CADA said.

To contact Bloomberg News staff for this story: Tian Ying in Beijing at ytian@bloomberg.net

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Ville Heiskanen, Indranil Ghosh

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With assistance from Bloomberg