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UPDATE 2-China tax cut on small cars saw sales lift, VW profit.
BEIJING SHANGHAI, Sept. 30 China has halved the sales tax on small cars to boost growth in the world's biggest auto market, a move likely to provide a limited boost to automakers including Volkswagen AG, the society entangled in a global scandal diesel emissions.
The reduction in sales tax on cars with less than June 1 liter engines take effect on 1 October and lasts until the end of 2016 cars in this segment accounts for nearly 70 percent of total sales in China.
Volkswagen made five of the 10 best-selling models in the category, although overall sales in China for the German automaker turned soft this year, forcing the company to counter with generous incentives.
The tax reduction announced by the cabinet Tuesday night, sent shares of major Chinese automakers more Wednesday with Great Wall Motor jumping up to 8 7 percent in Shanghai by the afternoon its stock of Hong Kong has jumped to over 10 percent.
other automakers like BYD Shares BAIC Motor and SAIC Motor also rose sharply.
Analysts and other experts say the tax cut, a repeat of a similar political movement after the global economic crisis in 2008, was not likely to trigger a recovery in the global market.
The fact that growth remained weak this year despite a sharp drop in retail price period suggests that the poor consumer confidence and economic uncertainty - rather than pricing and affordability - are responsible for the low demand analysts at Bernstein research firm wrote in a research note.
It would probably provide a sales lift, however.
Yale Zhang, head of consulting firm Shanghai Automotive Foresight, said the tax reduction could lead to additional sales of 100 000 vehicles per month for the rest of the year.
I expect some 300 000 to 500 000 additional sales for the last three months of the year in total, it has about 1 7 million cars were sold in China in August
crawling discounts and other incentives were in place in the market and there has been a general decline car retail prices in recent months, said Zhang.
Some are assuming the lowest sales taxes on new car purchases will not help much, but a government motion as it is so heavily and widely disseminated by the Chinese media that is more effective than agreements announced by the companies, he said.
Zhang said that all the top selling cars under 6 liters-1 would get a lift from the tax reduction, but especially SUVs and vans multipurpose who have been selling strongly in China - namely the Great Wall Haval H6 and Volkswagen Tiguan, two SUVs, minivans and some models of Wulin and Baojun brands owned and operated by General Motors Co. and its partner SAIC Motor Corp.
According to data from the automotive Foresight, China's best-selling vehicles in-1 6 liters are, from the top, the Wulin Hongguang MPV, VW Lavida New H6, the VW Jetta, VW New Santana, VW Sagitar, Tiguan, Hyundai Elantra and Toyota Corolla.
All these cars will benefit from the tax reduction, said Zhang.
Last time, in 2009 and 2010, only Volkswagen and indigenous Chinese brands were able to reap the benefits of the tax cut, but this time the global brands all cars with smaller engines and are ready.
Volkswagen has admitted to cheating diesel emissions testing in the US, but the transport minister of Germany said he also has rigged tests in Europe, where he has a lot more sales, and he faces the worst business crisis in its history of 78 years.
For Volkswagen, the tax cut provides much needed relief China accounted for more than half of VW's profits in recent years, but the automaker has started to curb Chinese production, wages and other costs, according the source of the industry, as it tries to cope with a sharp slowdown largest car market in the world.
Volkswagen Chinese joint venture, FAW-VW, canceled bonuses and cut staff changes at its plants near Changchun, China northeast, people with knowledge of the matter said.
The bonus being disposed generally represent more than half of the first net wage assembly line workers high-end brand Audi Volkswagen also earlier this month, it had eased back output in its Chinese factories, cut the working week to five seven days in response to weaker demand for models like the A6 sedan.
Car sales in China, the biggest market for the first time since 2009, remained stable during the first eight months of the year and could contract in 2015 in the world since the market took off in the 1990s late.
Many analysts expect sales growth of the automobile to maintain low single digits in the coming years and the global automakers reduce production and wages and other costs Reining.
Last month, China's central bank has provided support to car financing business by reducing the amount of reserves they need to keep with 3 5 percentage points However, many analysts believe that this move was unlikely to lead to strong sales increases given the relatively low car finance additional reporting rate by Samuel Shen in SHANGHAI; Edited by Raju Gopalakrishnan.
Updated: 2China tax cut on small cars saw sales lift VW benefit Reuters, update, small cars, saw.