BEIJING (Bloomberg) -- Fruit wholesaler Hao Hongfu will wait until next year to buy a car from a General Motors Co. venture in China, even though he could get a 1,545-yuan ($232) tax break for buying another vehicle now.
The upcoming Baojun 630 sedan from SAIC-GM-Wuling Automotive Co. should be more reliable than a Chinese brand, Hao said. He wants another car to complement the Beiqi Foton Motor Co. pickup truck he uses to haul apples, pears and oranges in Shandong province.
“It is a pity to give it up,” Hao, 32, said of the consumption-tax rebate. “But the Baojun looks very nice. I want to try out a foreign product.”
Overseas automakers including GM, Ford Motor Co. and Nissan Motor Co. should benefit next year if the Chinese government ends the rebate as expected by Dec. 31, said Bill Russo, a Beijing-based senior adviser at Booz & Co. The subsidy, which cuts the tax from 10 percent of the purchase price to 7.5 percent, applies only to cars with engines of 1.6 liters or smaller, a segment dominated by Chinese models.
Local brands accounted for more than 63 percent of the new models with that size engine last year, according to the China Association of Automobile Manufacturers.
“The game that has been played with incentives is to try to keep consumers, especially first-time consumers, interested in purchasing those locally branded cars,” Russo said. “To phase out the subsidies is more challenging for local companies than for foreign ones.”
Rising incomes also should prompt car shoppers to buy more foreign models in the world's largest auto market, Russo said. China's per capita income of $3,744 last year was more than double the 2005 amount, according to the World Bank.
Total vehicles sales may reach a record 20 million next year, he said, an 11 percent increase from the manufacturers association projection of 18 million this year. Total sales are up 34 percent through November over a year earlier, and passenger-car sales rose 35 percent in the same period.
The government hasn't said whether it will extend the rebate into next year. It was continued this year at the request of the Chinese manufacturers, said Xiong Chuanlin, the association's vice secretary-general.
Extension not ‘appropriate'
“I doubt the tax cuts will continue,” Xiong said. “We don't think it's appropriate.”
The government aims for local automakers, including Geely Holding Group Co. and BYD Co., to account for more than 40 percent of the market for cars, multipurpose vehicles and sport-utility vehicles, according to a stimulus strategy released in March 2009.
They now make up 31 percent, said Gerwin Ho, a Hong Kong-based analyst for Citigroup Inc.
“You have some policy withdrawal and that's going to slow down the car sales,” Ho said of the overall market.
BYD, which is backed by Warren Buffett, has sold the most cars among domestic automakers this year, according to association figures. Its F3 sedan, China's best-selling vehicle, comes with a 1-liter or 1.5-liter engine and is priced from 59,800 yuan.
“The tax-cut incentives definitely played a part in its popularity,” Tong Wei, a BYD salesman in Shanghai, said of the F3. “Its sales are likely to dip next year when the subsidies are removed.”
BYD spokesman Paul Lin didn't respond to e-mails or calls seeking comment.
GM, Ford and Nissan are among the foreign automakers introducing smaller cars and expanding into China's interior to compete with domestic companies.
GM, the best-selling foreign automaker in China, said sales are up 33 percent through November over a year ago and may reach a record 2.3 million in 2010. The Baojun is set to go on sale early next year through more than 100 dealers.
GM, which raised $23.1 billion in an initial public offering last month, said the Baojun line is meant to be affordable. It didn't announce the price. Sales growth the past two years has been “extraordinary” and should be 10-15 percent next year, GM China President Kevin Wale said.
“Any time an incentive is removed it will have some impact,” he said.
Ford, the second-largest U.S. automaker, expects record sales in China this year after opening as many as 100 dealerships, said Joe Hinrichs, chairman of Ford China. Sales rose 39 percent through October from a year earlier and will benefit next year from an expansion into central, western and northern China, the company said Nov. 25.
The Ford Focus starts at 104,800 yuan. Ford shares have risen 68 percent this year, compared with an 11 percent increase in the Standard & Poor's 500 Index.
“We are growing the part where the industry is growing the fastest,” Hinrichs said. “We expect another record year for Ford in China next year.”
Nissan, the best-selling Japanese automaker in China, expects to sell 960,000 cars there this year, spokesman Toshitake Inoshita said. Its March compact, which starts from 69,900 yuan, benefited from the tax cut, so its expiration may damp sales, he said.
Nissan, whose shares are little changed this year, said in September it planned to introduce the Venucia brand to help meet demand for cheaper models. It hasn't been priced yet.
“The multinational companies, GM being one, are trying to reach down a little lower in the price range,” Russo said. “As people in China get wealthier, they tend to buy more foreign-brand products.”
Honda Motor Co. aims to boost sales in China at least 10 percent next year to 730,000 units, said Seiji Kuraishi, China chief operating officer for the automaker. Sales this year may reach 650,000 units, compared with a previous target for 632,000, he said.
The Tokyo-based automaker also said it aims to start producing hybrid vehicles in Japan some time after it starts sales of the models in 2012. Hybrid production would have to amount to at least 2,000 units a month in China to make setting up a factory worthwhile, Kuraishi said.