Industry

A Chinese Auto Tax Cut Wouldn't Solve the Car Industry's Big Problems


Breakingviews

A Chinese Auto Tax Cut Wouldn’t Solve the Car Industry’s Big Problems

Image
Car sales are sputtering in China, but automakers have big problems around the rest of the world to worry about too.CreditCreditThomas Peter/Reuters

By Liam Proud and Pete Sweeney

  • Oct. 30, 2018

Get the DealBook newsletter to make sense of major business and policy headlines — and the power-brokers who shape them.
__________

China may try to dress the wounds of global carmakers, but it will be able to provide little more than a Band-Aid.

The country’s top economic-planning body is considering whether to cut in half the 10 percent tax that customers pay on new cars there, Bloomberg reported on Monday, citing unidentified sources. That might help prop up falling demand, but the industry has bigger problems.

Sputtering sales in China are one of the reasons shares in major carmakers have taken a hit this year. The country is now the world’s largest vehicle market, so last month’s almost 12 percent drop in sales compared with September 2017 — the worst decline in seven years — was bound to worry local and foreign manufacturers alike.

Cutting the tax may offer a temporary fix. A similar stimulus introduced three years ago boosted annual car-sale rates in China to 25 million units in 2016, from 21 million in 2015, according to the research company Evercore ISI. The same company also estimates that this time round such a measure could boost next year’s growth rate to 5 percent, an increase of 3 percentage points. That helps explain why shares in Daimler, Ford Motor, General Motors and Volkswagen all rose by 5 percent or more after Bloomberg’s report was published.

But China’s central and regional governments have already pumped generous subsidies into the industry, hoping to create both jobs and economic development. As a result the country now has more than 80 manufacturers and 180 vehicle assemblers, according to the consultancy firm PricewaterhouseCoopers, many of which have produced little of consequence for years. Up to a third of China’s annual production capacity of 43 million units may have to be idled this year, PWC estimates. That points toward consolidation, but reducing taxes is likely to delay that.

And anyway, foreign automakers — even those with large businesses in China — have bigger concerns. A slowdown in the United States and Europe will hurt them more than a slump in China. And President Trump’s threat to impose a 25 percent levy on European-made vehicles remains a dark cloud: BMW and Daimler would be hit hard, with 71 percent and 62 percent, respectively, of their U.S. sales produced in European factories, according to UBS.

A tax break in China may offer some relief, but it’s no cure.

Liam Proud is a columnist and Pete Sweeney is Asia economics editor at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

Let’s block ads! (Why?)



Source link

Related posts

InvestmentNews turns 20: A young industry evolves, as does our coverage

admin

America's Established Cannabis Industry Will Learn From Canada's New One

admin

Stan Lee and Marvel saved the comic-book industry after the US Congress tried to kill it

admin

Leave a Comment