Vehicle dealers' business conditions improved last year and more than half achieved profit, according to a report released by the China Automobile Dealers Association.

The chip shortage last year led to insufficient car supplies and narrowed the decline in car prices.

The China Automobile Dealer Survival Survey in 2021 showed that 53.8 percent of dealers earned money, up 14.4 percentage points compared with 2020.

Last year, a total of 70 percent of the dealers completed more than 80 percent of their sales targets. Dealers who met their sales target accounted for 29.4 percent.

The association said that in the past few years, the pressure on dealers has increased because of fiercer competition in the auto market and that they were involved in price wars to meet their sales targets.

Lang Xuehong, deputy secretary-general of CADA, said the insufficient car supply helped dealers to reduce inventory and increase profits.

Though dealers' operating conditions continued to improve, they will face the challenges of insufficient market demand, fewer customers and insufficient vehicle supplies as well as declining after-sales profits under the influence of the pandemic and chip shortages, Lang said.

Furthermore, the rapid development of the new energy vehicle market and growing NEV sales are having a huge effect on fuel car dealer groups.

The association's auto dealer inventory alert index was 58.3 percent in January, down 1.8 percentage points year-on-year and up 2.2 percentage points month-on-month.

The inventory alert index reflects the inventory pressure of automobile dealers. The index is lower than 50 percent when the market is healthy. It evaluates inventory, market demand, dealership finances and surveys of dealers' purchases, sales and stocks.

In January, dealers were at the stage of reducing their inventory from last year, Qiu Kai, a director of CADA said.

Based on the feedback from dealers, consumers' purchase demands and enthusiasm declined in January compared with previous years, Qiu said.

The association forecast that in February the sales will decrease and the inventory alert index will increase compared with January. Passenger car sales are estimated to reach around 1.4 million units, down around 40 percent month-on-month.

One of the main reasons is the Spring Festival holiday (Jan 31 to Feb 6). The research of CADA showed that more than 70 percent of dealers said that the market demand will decline this month because the car purchase demands were released in advance and the market was affected by the pandemic.

As the chip shortage gradually eases and more new models hit the market, 90 percent of dealers believe that whole year sales will show positive growth and 40 percent of them forecast that the sales in 2022 will increase more than 10 percent year-on-year, the report of CADA showed.