China Car Sales Growth Slumps In March As Tax Incentives Removed

As U.S. auto OEM’s deal with ‘plateau-ing’ sales domestically, it appears increasingly likely that they’re also about to suffer the consequences of some volume pull forward in China that artificially boosted 2016 sales.

As the Wall Street Journal points out this morning, Chinese auto sales growth has slowed materially so far in 2017, with passenger car sales up just 0.59% in March versus 15% growth in 2016, after auto ‘purchase taxes’ were raised to 7.5% from 5% last year. The tax cut was implemented in 2016 to boost slowing car sales and it seems to have worked ‘beautifully.’ The tax is expected to return to it’s normal level of 10% at the end of 2017…unless more stimulus is deemed necessary in the interim, of course.

Car sales in China rose at their fastest pace in three years in 2016 but are expected to cool considerably this year, as a weaker sales-tax incentive puts pressure on demand. Buyers of cars with engines up to 1.6 liters last year paid a 5% purchase tax. This year, buyers of such cars will pay a 7.5% rate.

In January, the car manufacturers’ group predicted a considerably slower 5% rise in China’s car sales this year compared with 15% in 2016. A rush by consumers to benefit from a lower purchase tax drove record-setting monthly sales figures last year but cut into future purchases, dealers and analysts say. Ford Motor Co. has said it expects sales growth in China to slow as the market matures.

Sales of vehicles, excluding those typically used for commercial purposes, grew 1.7% to 2.1 million units in March from a year earlier, the government-backed China Association of Automobile Manufacturers said Tuesday.

This marked a slowdown from the 6.3% growth in the first two months of the year. By comparison, sales grew nearly 10% in March 2016 from the previous year.