Sat, Nov 21, 2015 page14

• Tax cut could leave PRC auto sector driving blind

  RUNNING ON EMPTY? Analysts say a recent tax cut on vehicles with 1.6-liter engines or less might caninbalize future car sales and so they are lowering their forecasts

  • Reuters, GUANGZHOU, China
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  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.

  

  A Toyota Motor Corp FV2 concept vehicle yesterday stands on display at the China International Automobile Exhibition in Guangzhou.

  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.
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