China auto sales climb 11% after tax cut, dealer discounts

[SHANGHAI] China's passenger-vehicle sales rose for the ninth time in 10 months after a cut in the purchase tax, with General Motors Co and Toyota Motor Corp reporting increased deliveries among global carmakers in the world's biggest auto market.

Retail sales of cars, SUVs and multipurpose vehicles climbed 11 per cent to 1.76 million units last month, according to the China Passenger Car Association. That compares with the 6.4 per cent increase in sales in April. Deliveries rose to 9.12 million units in the first five months of this year.

Inventory levels - measured by the number of days a dealer needs to sell its stock - have remained above what's considered healthy for nine consecutive months even as sales accelerate, data from the China Automobile Dealer Association showed. This is despite China's government halving the purchase tax for smaller-engine models as of October in an attempt to boost economic growth.

High inventories, rising production capacity and 120 new models have made the Chinese auto market a buyer's paradise, at a cost to carmakers' profitability, according to Steve Man, an autos analyst at Bloomberg Intelligence.

The tax cut hasn't sparked the sales gains automakers were expecting, suggesting tighter profit margins lie ahead.

Automakers are cutting prices on models that are two years old or newer, according to Mr Man. The estimated 120 new and redesigned model launches this year compares with about 70 each in 2014 and 2015, according to BI analysis.

Among global carmakers, GM's sales in China rose 17 per cent to 295,282 units last month, as it delivered more SUVs and multipurpose vehicles. Toyota's deliveries in the country climbed 12 per cent to 102,900 vehicles, while Honda Motor Co's sales jumped 24 per cent to 99,456 units.

BLOOMBERG