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China Carmakers Say Demand Growth to Outweigh End of Tax Breaks

GM’s China President Kevin Wale
GM’s China president Kevin Wale said Dec. 20, “Some of the government incentives will be taken off, but there is tremendous underlying demand.” Photographer: Kevin Lee/Bloomberg

General Motors Co., Geely Automobile Holdings Ltd. and BYD Co. said growing demand for cars in China will outweigh the impact from the end of tax incentives that boosted sales.

Geely and BYD said today that new models and other government measures supporting car sales will offset a higher sales tax announced by the government yesterday. 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 on Dec. 20.

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 yesterday 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 year.

Rural Car-Buyers

China hasn’t said if it will extend subsidies for rural car-buyers or for those trading in old models into 2011.

While deliveries of Shenzhen-based BYD’s F3 compact, the nation’s best-selling passenger car, will grow at a slower rate in 2011, plans to add new models mean there will be only a small impact on the company’s growth from the tax increase, Paul Lin, a spokesman for the company, said today.

Lawrence Ang, Geely’s Hong Kong-based executive director, said carmakers would adapt small cars to benefit from a 3,000 yuan ($450) subsidy for fuel-efficient models. After some modifications, most small cars in China should be able to qualify for the efficiency-based incentive by early 2011, he said in an e-mail sent before the government statement yesterday.

BYD rose 1.1 percent to HK$40.35 in Hong Kong trading as of 3:55 p.m., while the benchmark Hang Seng Index advanced 1.5 percent. BYD has declined 41 percent in 2010. Geely rose 3.3 percent.

GM, Hyundai

GM, the largest foreign automaker in China, expects its local sales to rise as much as 15 percent in 2011, tracking the wider market, Wale said this month. The company’s Chinese sales gained 33 percent this year through November.

Hua Foley, GM’s Shanghai-based spokeswoman, said today the company hasn’t changed its forecasts after the Chinese government confirmed it was ending the tax break yesterday.

Other automakers played down the impact of the tax increase. Seoul-based Hyundai Motor Co., which sells more cars in China than in South Korea, said last week the removal of a tax rebate wouldn’t have a major impact on its sales, while predicting growth will slow to 2.9 percent in 2011.

Noh Jae-man, president of the automaker’s Chinese venture, said a shortage of production capacity may restrict growth in 2011.

Ford Motor Co. will watch how the new policy impacts the market, Irene Han, the company’s Shanghai-based spokeswoman, said today. The Dearborn, Michigan-based carmaker will continue to bring smaller, more fuel-efficient vehicles to China, Han said in an e-mail today.

SAIC Motor Corp., the nation’s largest domestic carmaker, said the government’s move was expected by the industry. The carmaker declined to comment on the impact on next year’s sales, spokeswoman Judy Zhu said today.

Separately, BYD, the Shenzhen-based automaker backed by Warren Buffett, said today it will miss its 600,000-vehicle sales target for 2010. The Hong Kong-listed carmaker will likely sell 520,000 to 550,000 cars this year, spokesman Lin said. BYD previously cut its target from 800,000 in August.

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