(Yicai) Sept. 4 -- Inventories at car dealerships in China declined 3.2 points in August from the prior month, indicating an improvement in auto market conditions.

The China Automobile Dealers Association’s Vehicle Inventory Alert Index for dealers stood at 56.2 percent last month, also down 0.7 point from a year ago. The VIA for dealers of luxury and imported brands was 59.3 percent, while that for domestic brands was 51.8 percent.

A lower VIA suggests that stock levels are more aligned with sales, indicating a healthier market.

China's auto market is being squeezed by the broader economic slowdown, regulatory changes, and intense price competition. The government has stepped in to buoy the market this year with policy initiatives such as trade-ins. But despite August’s improvement, the industry is still grappling with a fierce price war, leading to significant financial pressure on dealers.

With uncertainty increasing, the CADA recommends that dealers rationally assess actual market demand based on the current situation.

In April, the government introduced a new policy to boost the car market, providing direct subsidies to consumers for vehicle scrapping and renewal. Last month, grants for scrapping and then purchasing new energy and fuel passenger vehicles were raised to CNY20,000 and CNY15,000 (USD2,810 and USD2,110), respectively, from CNY10,000 and CNY7,000.

The number of vehicles scrapped and recycled in China surged 37 percent to 3.51 million in the seven months ended July 31 from a year earlier, according to data from the Ministry of Commerce. The growth rate has accelerated each month since the new policy.

Average daily scrappage and renewal subsidy applications have exceeded 10,000 last month, driving a month-on-month increase in sales, said Fan Yu, deputy secretary-general of the CADA's industry coordination department.

Demand for family cars has also risen as children return to school, Fan noted, adding that passenger car sales likely reached around 1.95 million units in August, a significant jump from a month earlier.

The policy is expected to boost the passenger car market for the rest of this year, according to Fan. This month and the next are traditional peak seasons, with September sales likely to jump year-on-year and month-on-month, he pointed out.

However, the cost of a new car continues to fall amid the price war, leading to a significant drop in sales, with dealers facing considerable cash flow pressure, Fan pointed out. 

Editor: Martin Kadiev