GM General Motors Company

SHANGHAI--Government tax breaks and dealer discounts helped fuel a 29% jump in China car sales last month for the biggest gain since January 2013.

Foreign and domestic auto makers shipped 2.27 million cars--including sedans, crossovers and minivans--to dealers last month, the China Association of Automobile Manufacturers said Wednesday, up from 1.75 million in September 2015.

So far this year, China's new-car sales are at 16.75 million vehicles, a 15% increase from the same period a year earlier.

The sharp uptick in September car sales reflects just how weak the market was a year ago.

In response to four straight months of slow sales, China's central government in October 2015 halved the 10% purchase tax on vehicles with 1.6-liter engines or smaller.

Sales have since rebounded strongly. More than 70% of cars sold in China qualify for the incentive, which helps consumers save up to 10,000 yuan, or about $1,500, when buying a new vehicle.

The tax break is scheduled to expire Dec. 31, as car dealers aren't shy about reminding customers.

In one of Shanghai's major automobile marketplaces, dealers had all posted countdown timers in their showrooms. "Don't hesitate. Time is running out," Zhu Huisheng, a dealer selling General Motors Co.'s Buick brand told customers. He offered a 10% discount for Buick Envision crossover.

Nationwide, new cars were sold at less than 90% of their tag prices in September, according to Ways Consulting Co., a local consultancy focused on the Chinese automotive industry. The discount levels have barely changed in the past four months, Ways said.

Sales have outstripped market expectations. In January, the auto manufacturers' group predicted a 7.8% rise for this year, while IHS Automotive put its estimate at 9.5%. Both are sticking with those numbers, given the prospect for a slow fourth quarter.

"We expect the growth will drop to single-digit rates in the fourth quarter. If Beijing doesn't extend the tax break, we are afraid the growth will be zero next year," said Lin Huaibin, an analyst at IHS.

Crossovers remained the brightest spot in the month. More than 879,000 sport-utility vehicles and crossovers combined were sold in China, 54% more than a year earlier, according to the manufacturers' group.

Analysts said growing affluence and increasing awareness of leisure time and its value would keep driving consumers to shift to big cars such as crossovers.

Thanks to increasing demand for cars, dealers maintained their inventories at healthy levels, said the China Automobile Dealers Association, a government-backed trade group. Nationwide, the average inventory at dealerships was equivalent to 36 days of sales in August, and an initial examination of more than 20,000 dealers showed that unsold cars dropped further in September, the association said. Anything above 45 days is considered unhealthy for dealers.

Overall sales of passenger and commercial vehicles increased by 26% in September from a year earlier, to 2.56 million. Year to date, sales of passenger and commercial vehicles combined grew 13% to 19.36 million vehicles.

Rose Yu and Lilian Lin

(END) Dow Jones Newswires

October 12, 2016 06:29 ET (10:29 GMT)

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