China's Brilliance Auto faces oversupply problems

Brilliance Auto has started to face oversupply problems, with some of its dealers seeing inventories rising in excess of one-and-a-half months, above the international warning level of between one and one-and-a-half months. As of the end of March, Brilliance Auto dealers in China had an inventory of 310,000 vehicles, said JP Morgan, citing the management of Brilliance Auto.

To clear the high inventory, the Chinese auto maker, besides allowing the dealers to adopt some unique sale strategies for its unpopular models, is seeing the dealers starting to cut sales prices. Even the Junjie FRV, one of the best-selling families of the company, is also seeing its price cut. Beijing Sanjiang Brilliance Automobile Sales & Service, a dealership in the capital, has unilaterally reduced prices for the 2009 Junjie FRV series by about $600 since May 1.

Given the unclear market prospect for this year, Brilliance Auto set the annual sales goal at 200,000 vehicles for the Zhonghua series, up 71.9 percent year on year, and that for Jinbei Sea Lion and Grace MPV at a combined 100,000 units for the two models, up 28.8 percent. This is expected to further increase sales pressure on dealers, according to the head of one dealership.

In fact, the oversupply problem with Brilliance Auto is just a reflection of an issue dogging the entire sector within the country. During the first four months of the year, automobile makers and dealers across the country were faced with an average overall inventory of 999,600 vehicles, of which 664,000 were passenger cars, accounting for nearly 70 percent of the total.