Chinese auto sales expected to grow despite the end of tax incentives

(December 29, 2010) Automotive tax incentives are ending in China, and that might stifle the world's biggest vehicle market.

Not so says executives of General Motors Co., Geely Automobile Holdings Ltd. and BYD Co. The view from the three Chinese automotive giants is that the country's demand for cars will outweigh the impact from the elimination of incentives that have boosted sales, according to Bloomberg News.

Geely and BYD said that new models and other government measures supporting car sales will offset a higher sales tax announced by the government on Tuesday. Kevin Wale, GM’s China president, said last week the nation’s economic growth and an increasing pool of new car buyers will help deliveries increase in 2011.

“Some of the government incentives will be taken off, but there is tremendous underlying demand,” Wale said.

Measures including consumption-tax cuts, subsidies for rural car-buyers and incentives to trade in older models helped China’s industrywide vehicle sales jump 46 percent last year to 13.6 million and 34 percent during the first 11 months of 2010.

China, the world’s largest auto market, said it will raise the tax on vehicles with engines of 1.6 liters or smaller to 10 percent from 7.5 percent next month. The tax was 5 percent in 2009.

China’s total vehicle sales including trucks and buses surged to 16.4 million in the 11 months through November, the China Automobile Industry Association said earlier this month. Auto sales may rise to 18 million units this year, making the nation the world’s largest auto market for a second straight year.