Chinese automobile dealers are struggling in extremely tight liquidity due to factors such as the price war and weak consumption and the government should introduce financing support measures to prevent risks in the sector, said the China Automobile Dealers Association (CADA) on Monday.
The association has recently submitted to relevant government departments an emergency report on the current problems faced by auto dealers, including the extremely tight liquidity and the growing risk of closures, and also put forward relevant policy recommendations, it said.
Auto dealers are suffering deep losses in new car business, leading to a widespread of cash flow strains and a growing risks of capital chain breaks, it said.
Car dealers are facing the pressure from weak consumption and high inventories, which force them to sell cars at low prices in order to reduce liquidity strains and financing costs, but at the same time, given the intensifying price war in the auto market, the more they sell, the more they lose, the association said.
Meanwhile, car dealers are also facing the pressure of maturing financing, increasing the risk of capital chain breaks, it added.
The discount rate in China’s new car market was 17.4% in August and the price war caused a total loss of 138 billion yuan in new car retail sales in the first eight months, which hampered the healthy development of the auto dealership industry, according to data compiled by the association.
The government should pay great attention to the financial difficulties and closure risks faced by car dealers and introduce financial relief measures to prevent systemic risks in the sector, it said.
The association called on the government to introduce financing support policy for auto dealers and guide financial institutions to step up the support for dealers, not to withdraw, suspend or reduce existing loans, allow more flexible loan extension, increase the credit lines for dealers and broaden the scope of use of loans.