China Car Sales Get Jump-Start From Tax Cut
November 11 2015 - 4:50AM
Dow Jones News
SHANGHAI—China is giving a boost to its weakened auto industry,
as a new government tax break in October spurred the biggest
monthly sales jump so far this year.
Still, results for the first 10 months of this year suggest
sales in the world's largest car market will likely miss industry
expectations, and are set to grow at their slowest pace in five
years.
China sold 1.94 million passenger cars last month, up 13% from a
year earlier, the government-backed China Association of Automobile
Manufacturers said Wednesday. The gain was the biggest since
December, when sales rose 16% year-over-year. In the
January-to-October period, new car sales grew 3.9% to 13.3 million
vehicles, compared with a 10% gain during the 10-month period a
year earlier.
The Chinese government in late September slashed the 10%
purchase tax in half on vehicles with engines smaller than 1.6
liters to rejuvenate the car industry. Nearly 70% of China's
new-car sales fall into the category that qualifies for the tax
break, the auto-manufacturers' group said.
Before the announcement of the new tax policy, new car sales in
the country had dropped for three consecutive months, prompting
leading global auto makers such as General Motors Co. and
Volkswagen AG to cut production to match sluggish demand in China,
the centerpiece of their growth plans.
Auto executives had forecast 2015 sales in China would rise by a
high-single-digit percentage, only to find a much tougher market,
with demand battered by a deeper-than-expected economic slowdown
and a roller-coaster stock market.
"The recently announced government incentive for vehicle
purchases helped boost buying sentiment starting in October," Matt
Tsien, president for GM's China operations, said last week, when GM
China reported a 15% year-to-year rise in its sales for
October.
Sun Shijing, a dealer for Chinese car brand Chery in Xinxiang, a
county city in the central Henan province, said his sales last
month were 20% greater than the average monthly volume in the first
three quarters of this year.
"Our customers are mainly from rural areas. They are very
sensitive to price changes," said Mr. Sun. "With the tax break,
they can save about 5,000 yuan for a 100,000-yuan-priced car. It's
not a small number, especially given the local economy is in the
doldrums," he said. One dollar is equivalent to 6.37 yuan.
Data from the auto-manufacturers' group show that sales of cars
with engines smaller than 1.6 liters grew 17% from a year earlier,
four percentage points higher than the entire car industry.
The last time China lowered the tax for small cars was in 2009,
when the global financial crisis took a toll on demand. That
prompted a 53% surge in passenger-car sales that year, which helped
China supersede the U.S. as the world's largest auto market.
While a reprise of that jump is unlikely due to a much bigger
base and a cooling economy, industry experts say that the incentive
program will take some pressure off car makers.
John Zeng, managing director at LMC Automotive, said the
consultancy firm forecasts a 5% rise in China's new car sales this
year, followed by an 8% increase in 2016. However, he said growth
of new car sales will likely slow to 4.7% in 2017, when the tax
break expires.
China's new car sales growth dipped to 5% in 2011 when China
dropped the tax incentive.
Major foreign car makers reported year-to-year sales gains for
October in China. Nissan Motor Co. said its sales rose 17% from a
year earlier, Ford Motor Co. posted a 7% rise and Daimler AG's
Mercedes-Benz Car reported a 43% surge.
Inventories at dealerships also continued to fall. The latest
survey by the China Automobile Dealer Association of more than
20,000 dealers showed that their average inventory level was 1.42
months of sales in September, down from 1.5 months in August and
1.65 months in July. In China, analysts regard 1.5 as the "alert
level" at which auto dealers should begin to be concerned about
high inventory.
--Rose Yuâ < and Lilian Lin
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(END) Dow Jones Newswires
November 11, 2015 04:35 ET (09:35 GMT)
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