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December 15, 2009

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Home » Business » Auto

Car makers upbeat despite a higher vehicle sales tax

CUI Hao, who is planning to get a Nissan Tiida sedan, recently had some mixed feelings about buying his first car.

The 28-year-old office worker had moved up his purchase plan to the end of this year in order to pay only a 5 percent vehicle sales tax before the rate rises to 7.5 percent next year.

But unexpectedly, besides the purchase plan, he was also forced to change the color of his dream car from red to black.

"I was told to wait for at least one month to get the red car. But by that time I would not be able to take advantage of the cheaper tax," he complained.

"So I changed the color because the 2.5 percent rate difference means a lot for auto buyers on a budget," he said with a forced smile on his face.

Cui was among many auto buyers who rushed to place orders before China capped a new sales tax on vehicle sales.

The central government's decision to extend incentives to the auto industry into next year has been welcomed as a boon to the world's biggest car market, but some analysts worry that an accompanying tax revision might blunt the benefits.

The State Council, China's Cabinet, announced last Wednesday that the sales tax on vehicles with engine capacities of 1.6 liters or less would be set at 7.5 percent next year. That's lower than the 2008 rate of 10 percent but higher than the 5 percent imposed this year and due to expire on December 31.

The government also said it will raise the subsidy to consumers who trade in old vehicles for newer, cleaner cars from a maximum of 6,000 yuan (US$879) to a maximum 18,000 yuan.

The tax incentives, introduced last February amid a global economic slowdown, triggered a 42 percent surge in vehicle sales in the first 11 months of the year, breaking the 12 million milestone and catapulting China past the United States as the world's largest auto market.

Some analysts said industry euphoria may be tempered by the sales tax rate moving to 7.5 percent from its current 5 percent. The revision is seen as a government attempt to prevent the auto market from speeding out of control and to address problems associated with urban traffic congestion, energy consumption and capacity shortages.

Su Hui, former general manager of an auto trading market in Beijing, said the tax change won't be conducive to steady growth in the auto market because the financial crisis hasn't bottomed and the domestic auto industry isn't stable yet.

Yale Zhang, director of the auto consulting firm CSM Asia Corp in Shanghai, agreed.

"The revised tax may diminish the attractiveness of car-buying in inner cities because people there are very sensitive to purchase costs," he said.

Supply problems

The explosive growth in auto sales this year created supply problems in some areas, forcing consumers to pay more for cars then endure long waits for delivery.

Vehicles with engine sizes of 1.6 liters or smaller contributed 85 percent of the industry's sales growth, the manufacturers' association said.

It estimates that government incentives this year boosted sales by 2.6 million units.

However, Dong Yang, executive vice chairman and secretary-general of the association, said the 7.5 percent sales tax may damage the momentum of development for Chinese-brand vehicles and dent the industry's ambitious plans to produce more energy-efficient cars.

For the first 11 months of this year, sales of domestic-brand vehicles totaled 4.09 million units, accounting for 44 percent of passenger car sales.

The majority of Chinese-brand cars are equipped with smaller engines and thus benefited most from the government incentives.

"The latest revision in the tax rate will impact sales of domestic brands in the short term and hurt the competitiveness of Chinese car makers against international rivals," Dong said.

He also said the tax revision may prompt a flood of orders before the end of this year. "That would lower sales for the first quarter of 2010 and create uncertainty about steady growth next year," Dong said. According to the State Administration of Taxation, robust auto sales in the first 10 months of this year boosted auto sales tax revenue by 12 percent and auto purchase tax revenue expanded by 6.3 percent.

Still, the Chinese Association of Automobile Manufacturers is predicting sales next year will top 13 million.

No major car makers in China lowered sales forecasts for 2010 after the government's latest measures were announced.

"The whole industry is in an upbeat mood," said Jin Yibo, a spokesman for Chery Automobile Co Ltd. "We look to measures such as the rising subsidy to be a new driving force."

General Motors and Volkswagen had earlier estimated auto sales in China would grow between 10 percent and 15 percent next year.

Porsche Panamera

The new Panamera is the first four-door model added to the legendary Porsche family.

The luxury sports car features a powerful engine, ergonomically pleasing design and innovative features tailor-made for the Chinese consumer. Besides the outstanding interior and spacious storage area, all Panameras come with fuel injection, low-friction drive systems and a double-clutch gearbox for enhanced efficiency.

The Panamera S, Panamera 4S and top-of-the-range Panamera Turbo are now available at the Porsche Center Shanghai with prices ranging from 1.84 million yuan (US$269,794) to 2.49 million yuan.

Crown fit for a king

Toyota's newly launched premier sedan Crown tries to deliver on its advertising slogan of innovative luxury.

Toyota said the well-acclaimed Crown saloon is 5 meters longer and has an extended wheelbase to highlight its driving comfort. Toyota also equipped the local model with its most advanced technologies to give drivers improved suspension, intelligent parking assistance and a start/stop system.

The new Crown comes with either a 2.5-liter, 3.0-liter or 4.3-liter V8 engine. Nine versions of the vehicle are priced between 326,800 yuan (US$47,917) and 899,500 yuan.


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