China’s policy of reducing sales tax for small-displacement vehicles is benefiting joint venture brands, according to a signed article published in Qingnian Cankao Bao or Elite Reference quoting statistics released by China Association of Automobile Manufacturers (CAAM).
In the two months since October 1 when sales tax for passenger vehicles with 1.6L engines and smaller was reduced from 10 to 5 percent, a total of 1.87 million units of such vehicles were sold, which accounted for 79.5 percent of the total passenger vehicle sales or a 9.8 percent year-on-year increase.
The reduced sales tax will remain effective until the end of 2016, a policy to boost sales of small vehicles.
JV brands assembled in China have benefitted the most so far. In November, Nissan’s new car sales in China soared up to 120,000 units, a yearly growth of 21.9 percent. Toyota sales were up 13.5 percent, Honda 32.7 percent, and Mazda 10.3 percent.
JV brands from Europe, the U.S. and Korea also reversed their downturn in China thanks to the policy. A senior executive of Volkswagen said that the tax reduction policy is applicable to 70 percent of Volkswagen’s cars selling in China. Since October, Volkswagen’s two JV companies have both seen double-digit growth.
Volkswagen has released its 1.4T and 1.2T models with turbocharged engines in an effort to lower emissions. PSA Peugeot Citroën also released its 1.2T engine. GM expanded its 1.4T engine application. And Ford launched cars with 1.0T and 1.5T engines and 70 percent of its cars can benefit from the new policy.
“JV brands benefit the most from the tax reduction policy because they have developed smaller-engine vehicles,” an executive of a Chinese brand was quoted as saying. “But local Chinese companies have been trying to develop SUVs as well as mid- to high-end cars to improve their brand image and move into the premium segments. Their economy cars, with which Chinese brands thrived on, have not been updated for a long time.”
Statistics show that from January to October of 2015, 1.92 million units of passenger cars were sold by Chinese brands, a 12.4 percent year-on-year drop. The number accounted for 20.8 percent of overall passenger car sales, a yearly drop of 1.1 percent. On the bright side, Chinese brands sold 2.5 million SUVs in the same period of time, a yearly growth of 82 percent and accounting for 53.2 percent of the total SUV sales.
However, the growth in SUV sales of Chinese brands cannot offset their declining performance in sedan sales, especially when JV brands have released many economy and smaller-engine models.
When China in 2009 introduced the same policy on 1.6L and below cars, Chinese brands became the biggest beneficiary. But in a mere six years, JV brands have gained an upper hand in the sales of small cars.