36 Chinese automakers cut list prices, backing tax breaks

BEIJING — The Chinese government and 36 automakers operating in the country have teamed up to revive anemic vehicle sales by offering tax breaks and rebates.

New vehicle sales fell 12.6% year on year in May, the China Association of Automobile Manufacturers reported on Friday, the third straight month of double-digit declines. But a silver lining was that the downside margin improved from April’s 47.6% plunge.

“With joint efforts, the auto industry is likely to return to a normal trajectory soon,” said Chen Shihua, deputy general secretary of CAAM.

Chen’s “joint efforts” refers to the initiative to promote auto sales, pushed by the government and industry. Sales in China totaled 26.27 million passenger and commercial vehicles last year, and the entire auto sector accounts for about 10 percent of gross domestic product.

The central government took the first step. The State Council, China’s cabinet, is enacting tax cuts worth 60 billion yuan ($8.97 billion) between June and December. The purchase tax on certain passenger vehicles will be reduced by half.

The tax cuts target cars with engines of 2 liters or less, priced at 300,000 yuan or less. A wide range of models will benefit, including those from foreign automakers.

In addition, 21 provinces and provincial-level cities will grant maximum rebates of about 20,000 yuan to those who trade in new vehicles. Guangdong province will grant 10,000 yuan to those who sell old vehicles and buy new cars using alternative energy sources – known as new energy vehicles – according to Chinese media. The subsidy will be 5,000 yuan for a new gasoline vehicle.

Cities will also relax limits on issuing license plates. Guangzhou will issue an additional 30,000 plates until the end of June, and Shenzhen will release an additional 20,000 plates until the end of 2022.

Shanghai will provide a subsidy of 10,000 yuan for each purchase of certain electric vehicles. The city of Changchun grants vouchers of up to 7,000 yuan to those who purchase new vehicles. Shandong and Henan provinces have also announced plans to support car sales.

Automakers have responded by cutting list prices or otherwise lowering the amount consumers pay. The 36 major automakers, including those overseas, have embarked on sales promotion campaigns, Chinese media report.

Two joint ventures — one between Volkswagen and China FAW Group, and the other between Hyundai Motor and Beijing Automotive Group — have offered to pay some or all of the remaining purchase taxes from the state tax relief.

Other Chinese automakers have jumped on this bandwagon. Great Wall Motor will pay purchase taxes on sport utility vehicles. Chongqing Changan Automobile will bear the full purchase tax on its Oshan line of vehicles and levy up to 20,000 yuan more. SAIC Motor will reduce vehicles under its own brand by 125% of the purchase tax.

The China Passenger Car Association predicted in mid-May that sales would fall 5% this year to 19 million units. But after seeing the wave of incentives, the group raised the outlook to 21 million passenger vehicles.

Car purchases in China have plummeted due to fallout from the country’s “zero COVID” policy. Authorities have locked down Shanghai and imposed strict restrictions on Beijing following coronavirus outbreaks. These measures have forced car dealerships and factories to suspend their activities.

“If relevant companies in and around Shanghai do not find a way to restart production at factories, all Chinese auto factories may stop production in May,” He Xiaopeng, CEO of Chinese automaker Xpeng, wrote on the Weibo social media platform in April. . The CEO’s warnings proved prophetic for Shanghai and some other cities.

The lifting of Shanghai’s lockdown is expected to breathe new life into China’s auto industry. But problems remain.

Discounts could cannibalize future sales. This happened in China after the small vehicle tax cut expired at the end of 2017. Sales plummeted the following year and the government responded by reinstating the subsidies in 2019.

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