China auto sales drop at smallest pace in seven months, tax cuts help

BEIJING (Reuters) - China’s auto sales fell again in March but the pace of decline was the smallest in seven months, industry data showed, as car makers reduced retail prices to boost business after Beijing handed out tax cuts to spur consumer spending.

Workers walk among the newly arrived imported Toyota cars at the Shenzhen Dachan Bay Terminals in Guangdong province, China April 10, 2019. Picture taken April 10, 2019. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. TPX IMAGES OF THE DAY

Sales fell 5.2 percent from a year ago to 2.52 million vehicles, the China Association of Automobile Manufacturers (CAAM) said on Friday, marking the ninth straight month of decline in the world’s largest auto market.

But this was the smallest drop since August 2018.

“We saw a warmer recovery in March. We are optimistic and hope to see the turning point appear in around July and August” said Xu Haidong, assistant secretary general at CAAM, the country’s biggest auto industry association.

Recent government cuts to value-added tax (VAT) are expected to further benefit car sales, Xu added. “The VAT cut can drive production and employment, so an effective implementation of the policy can bring warmth to the market.”

China has cut VAT for the manufacturing sector to 13 percent from 16 percent, prompting some car makers such as BMW and Mercedes-Benz to lower prices.

“We expect China’s auto market to see positive growth in the third quarter and a relatively large increase in the fourth,” said Alan Kang, Shanghai-based analyst at LMC Automotive.

In 2018, China’s car market hit reverse for the first time since the 1990s against a backdrop of slowing economic growth and a crippling Sino-U.S. trade war.

However, new energy vehicle (NEV) sales have remained a bright spot, jumping almost 62 percent last year even as the broader auto market contracted.

Last month, NEV sales rose 85.4 percent to 126,000 units, the CAAM said.

China has been a keen supporter of NEV - pure battery electric, hybrid and plug-in hybrids - and has started implementing NEV sales quota requirements for automakers.

After rolling out a generous 5-year NEV subsidy program in 2016 to support sales and encourage innovation, Beijing recently pledged to phase it out by 2020 and raise standards for vehicles eligible for subsidies amid criticism some firms have become too reliant on the funds.

Reporting by Beijing newsroom, Yilei Sun and Brenda Goh in Shanghai; Editing by Himani Sarkar