China’s move to cut tax on small-engine cars may revive sales growth next year only to leave the world’s biggest auto market running on empty in years to come, analysts warn, raising the specter of industry restructuring at the end of the road.
As one of China’s biggest auto shows got under way yesterday in Guangzhou, sector watchers said sales may rise from 1 percent to 8 percent next year after Beijing cut taxes to coax buyers who had turned fretful over China’s slowing economic growth. The wide range of forecasts highlights the uncertainty now clouding China’s auto market and the tax cut’s impact.
The projections for next year could mean improvement on the 2 percent growth seen for this year. Yet many analysts see the tax cut as “pulling forward” future car sales, and are lowering forecasts for 2017 and 2018 toward a single-digit percentage level that they say may force carmakers and Beijing to embrace a shake-out.
Photo: Bloomberg
“China would have then no choice but to allow some painful restructuring to occur,” JD Power senior analyst John Humphrey said.
Three or more years with growth “around 2 or 3 or 4 percent” would render the status quo of Beijing support through times of weaker sales growth “untenable,” Humphrey said.
At the Guangzhou show, Soh Weiming, vice president of sales for Volkswagen AG, predicted China’s passenger vehicle market will grow 3 percent to 5 percent next year.
“It’s going to be better than 2015,” Soh said. “I would say not as good as before.”
Benefiting from decades of double-digit percentage sales growth as it rose from humble beginnings, China’s auto sector has yet to experience significant restructuring.
At times when China’s carmakers have run into temporary sales dips, Beijing has stepped in with policy support, such as tax cuts and purchase subsidies. With the economy slowing, squeezing the government of tax revenue, automakers would not be able to count on further policy support, analysts say.
The latest tax cut — on vehicles with 1.6 liter or smaller engines — was introduced on Oct. 1 after sales had threatened to slip into negative territory as the economy faltered.
Authorities similarly cut taxes in 2009 to boost car sales, only to see a negative correction once the breaks expired, said John Zeng (曾志凌), an analyst for LMC Automotive Consulting.
LMC raised its forecast for passenger vehicle growth next year to 8.2 percent after October’s move, but lowered its sales forecast for next two years: It now sees 2017 growth at 4.5 percent.
For now, carmakers are standing by long-term sales, production and investment plans in China.
At the Guangzhou show, Toyota Motor Corp’s China chief Hiroji Onishi said the firm is on track to achieve its goal of selling 1.1 million vehicles in China this year.
Joachim Wedler, head of Volkswagen’s Audi unit in China, said the premium German brand will have 10 all-new or face-lifted models in the country in the next nine months. Those 10 models should account for 60 percent of Audi’s annual volume in China, he said.
If longer-range strategy is unchanged, some have adjusted tactics already in seeking to support sales in response to market weakness before the tax cut. Companies like Volkswagen and General Motors Co already cut prices this year and are reducing production shifts.
A China-based sales executive for one of Volkswagen’s main joint ventures, who was not authorized to speak to the media, said the tax cut essentially saved Volkswagen from deeper cuts like layoffs “overnight.”
Meanwhile firm Guangzhou Automobile Group (廣州汽車集團) delayed adding 400,000 in new car production capacity, the first half of which was to come on line next year, to 2020.
NOT JUSTIFIED: The bank’s governor said there would only be a rate cut if inflation falls below 1.5% and economic conditions deteriorate, which have not been detected The central bank yesterday kept its key interest rates unchanged for a fifth consecutive quarter, aligning with market expectations, while slightly lowering its inflation outlook amid signs of cooling price pressures. The move came after the US Federal Reserve held rates steady overnight, despite pressure from US President Donald Trump to cut borrowing costs. Central bank board members unanimously voted to maintain the discount rate at 2 percent, the secured loan rate at 2.375 percent and the overnight lending rate at 4.25 percent. “We consider the policy decision appropriate, although it suggests tightening leaning after factoring in slackening inflation and stable GDP growth,”
DIVIDED VIEWS: Although the Fed agreed on holding rates steady, some officials see no rate cuts for this year, while 10 policymakers foresee two or more cuts There are a lot of unknowns about the outlook for the economy and interest rates, but US Federal Reserve Chair Jerome Powell signaled at least one thing seems certain: Higher prices are coming. Fed policymakers voted unanimously to hold interest rates steady at a range of 4.25 percent to 4.50 percent for a fourth straight meeting on Wednesday, as they await clarity on whether tariffs would leave a one-time or more lasting mark on inflation. Powell said it is still unclear how much of the bill would fall on the shoulders of consumers, but he expects to learn more about tariffs
Greek tourism student Katerina quit within a month of starting work at a five-star hotel in Halkidiki, one of the country’s top destinations, because she said conditions were so dire. Beyond the bad pay, the 22-year-old said that her working and living conditions were “miserable and unacceptable.” Millions holiday in Greece every year, but its vital tourism industry is finding it harder and harder to recruit Greeks to look after them. “I was asked to work in any department of the hotel where there was a need, from service to cleaning,” said Katerina, a tourism and marketing student, who would
i Gasoline and diesel prices at fuel stations are this week to rise NT$0.1 per liter, as tensions in the Middle East pushed crude oil prices higher last week, CPC Corp, Taiwan (台灣中油) and Formosa Petrochemical Corp (台塑石化) said yesterday. International crude oil prices last week rose for the third consecutive week due to an escalating conflict between Israel and Iran, as the market is concerned that the situation in the Middle East might affect crude oil supply, CPC and Formosa said in separate statements. Front-month Brent crude oil futures — the international oil benchmark — rose 3.75 percent to settle at US$77.01
RSS