Oil price, tax slow China car sales

PUBLISHED : Monday, 28 July, 2008, 12:00am
UPDATED : Monday, 28 July, 2008, 12:00am

Mainland carmakers are likely to miss domestic sales targets this year as consumer confidence sags and buyers put their big spending plans on hold.

'Customer confidence has been shaken by the rising cost of living, a weak equity market, and higher fuel costs,' said Sharon Wong, deputy head of equity research for Asia at Standard & Poor's.

Already languishing at around half of their 52-week highs, share prices of carmakers such as Hong Kong-listed Geely and Brilliance could come under further downward pressure on slowing sales growth slows and a new tax looms on petrol-guzzling larger cars, add analysts.

Automotive Resources Asia, a division of JD Power, recently amended its forecast for growth in the mainland vehicle market to 10 per cent for the year - down from its original estimate of 15 per cent and less than half the growth recorded last year.

China, the world's second-largest vehicle market, recorded growth in vehicle sales of 22 per cent to 8.8 million units last year and before the latest downward revisions, was expected to see sales of 10 million units this year - or up 14 per cent.

But now that growth rate looks unlikely as economic growth slows under the weight of macroeconomic policy aimed at combating surging inflation and concerns over credit markets.

The United States and Japan are also expected to record lower sales growth for this year.

Deutsche Bank researchers say US sales may drop to 14 million cars this year - down from a previous estimate of 14.5 million and the lowest in 15 years.

Japan, the world's third-largest vehicle market, faces the likelihood of a 1.2 per cent sales decline to 5.32 million units this year, according to data from the Japan Automobile Manufacturers Association.

After a meeting chaired by Premier Wen Jiabao last Wednesday, the State Council confirmed that it 'encouraged fuel-efficient vehicles and the implementation of higher consumption taxes for large-engined vehicles'.

Mainland car dealers interpreted those remarks as a precursor to a looming increase in vehicle consumption taxes that could deal a sharp blow to the sales of high-end and imported vehicles.

Yale Zhang, director of Greater China vehicle forecasting at consulting firm CSM Worldwide, said the exact time for implementing a higher consumption tax and tax concessions for green cars remained uncertain.

'Beijing will keep an eye on the oil price to make such a judgment,' he said. 'It's not in a hurry to launch the new taxation policies for green cars now because the oil price is falling and it often takes a long time for the central government to truly put new ideas into practice.'

S&P's Ms Wong added that a new tax on larger cars might have only a limited impact on sales.

'Demand for mid- to high-end cars [in China] is likely to be less affected by the policy as buyers in this group tend to be less price-sensitive, [but] some car dealers will make use of the 'fuel efficient' theme in their marketing activities [in the future],' she said.

Growth of vehicle sales on the mainland slowed to 18.52 per cent to 5.18 million units in the first half as inflation and natural disasters tempered demand. The top 10 carmakers such as Jilin-based FAW Volkswagen, Shanghai GM, FAW Toyota, Hubei-based Dongfeng Nissan, Guangzhou Honda, Geely Automobile and Chery Automobile accounted for one-third of the first-half sales.

Shares in Geely closed unchanged at 86 HK cents on Friday - from a 52-week high on July 26 last year of HK$1.39.

Brilliance China closed down 2.17 per cent at 90 HK cents - well under half its 52-week high of HK$2.18 recorded on September 27.


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