Although China Association of Automobile Manufacturers (CAAM) is pushing to make the tax break permanent, any downward revision of the tax break will affect VW’s China operations.
According to the head of VW’s China operations, the planned retraction of tax breaks for small engine cars in China, is likely to hit its sales in the country next year.
Incidentally, the Chinese auto industry is keen that this measure is extended.
In October 2015, the sales tax of all cars with an engine capacity of 1.6 litres were cut by 50% so as to help stimulate the car market. Volkswagen has a strong presence in this segment. This measure is set to expire by the end of this year.
These tax measures along with other economic stimuli, the Chinese economy did not slow down as was feared earlier. Instead VW’s deliveries in China, grew by 6.8% in this first quarter against a 3.4% drop in the comparative quarter in the previous year.
“If the government really stays on the present decision that this will be sharply stopped at the end of this year, you can expect pre-sales this year, with a bigger negative impact the first quarter of next year,” said Jochem Heizmann, VW’s China CEO. “But let’s see if this really stays this way.”
Meanwhile, the industry body of China Association of Automobile Manufacturers (CAAM) had said in June that it favoured a permanent tax since the move promoted fuel-efficient cars.
“Of course we are talking with the government, with CAAM. Everybody does see this risk so this is what I’m saying that hopefully things will change,” said Heizmann.
According to CAAM, Volkswagen had lagged slightly behind in growth in the overall market, which grew by 8.1%, in the first half of this year.
As per Heizmann, during the second half of the year, China’s car market is likely to see a slowdown as it outpaced forecasts in the first half of the year.
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