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Tax cuts, subsidies boon for GM China

(China Daily/Agencies)
Updated: 2009-03-20 07:54

General Motors Corp can thank US taxpayers for $13.4 billion in loans that have kept it running. The carmaker can also thank China's government, which is kicking in subsidies of as much as $1,170 to help it sell vans.

Related readings:  GM keeps growing in China  GM's future hanging by a thread

The automaker's China minivan venture boosted sales 32 percent in the first two months after a cut in retail taxes on small vehicles. The government is now giving out 5 billion yuan in subsidies to spur auto sales in rural areas.

GM doubled its 2009 forecast for China's market growth as the tax cuts and subsidies revived demand. By contrast, the US carmaker's domestic sales have slid 51 percent, forcing it to seek as much as $16.6 billion more in government aid.

Vehicle sales in China may rise between 5 percent and 10 percent this year, according to GM, the largest overseas automaker in the country. It had previously forecast sales growth of less than 3 percent. The automaker expects to outperform the wider market by as much as 3 percentage points, helped by sales at SAIC-GM-Wuling Automobile Co, the largest minivan-maker in China. The venture accounts for at least half of GM's China sales.

"There's a very direct link between the government's efforts to boost rural consumption and Wuling's rising sales," said Nick Reilly, GM's Asia-Pacific president. "The government has also come out with its stimulus package and the stock market is up and that's giving people confidence to spend again."

SAIC-GM-Wuling sales rose to 72,947 vehicles in February, about 50 percent more than a year earlier, according to the China Association of Automobile Manufacturers. In January, the government halved retail taxes on vehicles with engines of 1.6 liters or less. The tax break, covering more than half the market, helped end three months of falling nationwide sales.

Chinese farmers and other rural residents who buy a new minivan or light truck can also get a subsidy equal to 10 percent of the purchase price, up to a maximum of 5,000 yuan.

Rural drivers who replace an existing light truck with a new truck or minivan can get a further 3,000 yuan.

This help allowed Wu Tao, 25, to replace the electric bike he used to ferry goods to his store in Hebei province with a SAIC-GM-Wuling Sunshine minivan - the first vehicle his family has ever owned. "Because the government is giving us money, I was able to get it now instead of waiting until I had saved up more," Wu said.

Nationwide minivan sales may rise as much as 30 percent this year, according to Shenyin & Wanguo Securities Co.

While the subsidies have boosted sales, they may do little for automakers' profits. The impact for GM is diluted by the fact that it only holds 34 percent of SAIC-GM-Wuling. SAIC Motor owns 50.1 percent and Liuzhou Wuling Motors Co owns the remainder. More generally, farmers are mainly buying cheap, low-margin models - prices run as low as 30,000 yuan.

"Farmers are sensitive to differences in prices of as little as 100 yuan," said Zuo Yanan, chairman of Anhui Jianghuai Automobile Group Co.