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RPT-EXCLUSIVE-Reverse gear: China car dealers push for tax cut as auto growth stalls

Fri 12th October, 2018 3:20am
(Repeats item first published late on Thursday with no changes
to text)
    * Car dealers propose to govt purchase tax be halved to 5
    * World's largest auto market has stalled in recent months
    * Sales could fall for first time in decades in 2018 -

    By Yilei Sun and Adam Jourdan
    BEIJING/SHANGHAI, Oct 11 (Reuters) - China's top auto
dealers' association has asked the government to halve taxes on
car purchases to revive faltering sales, sources said, as
worries grow the country's auto market could shrink this year
for the first time in decades.
    The China Automobile Dealers Association (CADA) submitted
documents last month to the country's finance and commerce
ministries proposing the 10 percent auto purchase tax be halved,
two people at the industry body told Reuters.
    The influential body has made proposals in previous years
that have helped shape auto policy. When China last cut the
purchase tax three years ago, car sales soared in the world's
biggest auto market that is a key battleground for global car
makers from General Motors  GM.N  to Toyota Motor  7203.T .   
    CADA's initiative comes as Beijing itself seems concerned
about China's auto industry, an important barometer of the
health of the world's second largest economy. It has launched
stimulus measures as a bruising trade war with the United States
is pressuring economic growth.  urn:newsml:reuters.com:*:nL4N1WO023
    One of the people said the commerce ministry met with
automakers this week to discuss the market and ways to spur
growth, which included purchase tax cuts - a signal the central
government may be warming to the idea.
    "The overall car market is weak this year. Dealers I know
are struggling to maintain their sales volumes as they feel
pressure from both car makers and cash flow," said the second
person, a CADA official.
    He confirmed the industry body had proposed to the two
ministries to lower the purchase tax rate. "We asked for a 50
percent cut but any reduction could help."
    The first person, a CADA insider familiar with the plans,
said the association was seeking a 50 percent cut to the
purchase tax on cars with engines of 2.0 litre capacity or
below, similar to the tax rebate on smaller-engine cars that
helped drive rapid growth in 2016.
    This person added it was unclear what the finance ministry
and commerce ministry would do in response, but that the latter
had met with car makers earlier this week to "discuss the
performance of the auto market, sales trends and taxation".
    China's Ministry of Finance and Ministry of Commerce did not
immediately respond to requests for comment. The CADA insiders
did not want to be identified because of the sensitivity of the
    CADA secretary general Xiao Zhengsan said the market might
see a slight decline this year, but measures like promoting the
rural car market or adjusting VAT for second-hand cars may
bolster sales. He did not comment on the purchase tax cut
    A spokesman for the China Association of Automobile
Manufacturers (CAAM), Xu Haidong, said the nation's top auto
industry body had not proposed cutting the purchase tax.
    China's auto sales grew a steep 13.7 percent in 2016, in
large part aided by the tax break, but started to slow when the
tax rebate was phased out last year.
    Its auto sales fell 3.8 percent in August and 4.0 percent in
July, official data show. CAAM is set to release September sales
data on Friday. A person with knowledge of the figures said "the
situation is bad".  urn:newsml:reuters.com:*:nL4N1WO1KF
    China's army of car dealers are caught in the middle, facing
a build-up of inventory and having to slash prices to maintain
their sales volumes.
    "Almost everyone is doing the same thing," said the manager
of a car dealership in the southwest metropolis of Chongqing,
asking only to be identified by his surname Li. "We lose money
from selling cars... so if we sell too many cars, we will simply
lose more money."
    CADA represents thousands of dealers nationwide. Bigger
names include Sinomach Automobile Co  600335.SS , Pangda
Automobile Trade Co  601258.SS , China Yongda Automobiles
Services Holdings  3669.HK , Zhongsheng Group Holdings  0881.HK 
and China Grand Automotive Services Co  600297.SS .
    Analysts said that without government support China's auto
market could slip to its first annual sales decline since as far
back as the early 1990s, when the sector first started to take
off and lure in global car makers.
    Alan Kang, Shanghai-based senior analyst at consultancy LMC
Automotive, cited "sluggish" retail demand, "bloated dealership
stocks" and the escalating trade conflict for his firm revising
down its outlook for market growth to -0.3 percent for the year.
    Tax cuts could change that, at least in the short-term.
    "Our view is that purchase duty cut policy would stimulate
the market," he said. "However, it simply pulls demand ahead
from the years beyond, without actually creating new demand."

 (Reporting by Yilei Sun and Adam Jourdan; Editing by
Muralikumar Anantharaman)
 ((adam.jourdan@thomsonreuters.com ; +86 21 6104 1778; Reuters
Messaging: adam.jourdan.thomsonreuters.com@reuters.net))))
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