Keep it Simple

Bloomberg

Commentary

There are many reasons for the current auto industry slump, and there are probably many different ways to fix it. China found a simple and effective way. Cut retail tax on vehicles by 50%, and encourage rural farms and small business to purchase new vehicles. It is the same strategy that helped the Bush Administration sell millions of SUVs and Hummers, driving gas prices sky high. The difference here, in China, the vehicles that are the most popular are the gas misers, with engines smaller than 1.6 liter.

Even India managed to have an increase in sales in February, and not just because of a snowy 2008 winter, or the early Chinese New Year. Clearly, the mixed messages from the American media and the Obama Administration have confused the American public. They don't know what to do.

If GM can make a profit in China, there is no reason it cannot make it in America. The problem is, they still have a backlog of SUV and Hummers sitting on the lot. You'd think all those billions of handouts would allow them to write those off the books, send them overseas for a reduced profit, and start fresh. What seems to be the holdup?

Excerpts

China vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models, helping the country extend its lead as the world’s largest auto market this year.

Sales of passenger cars, buses and trucks climbed to 827,600, the China Association of Automobile Manufacturers said today in Beijing. The tally in the first two months rose 2.7 percent to 1.56 million, compared with a 39 percent decline to 1.35 million in the U.S.

China has halved retail taxes on small cars and drawn up plans to give out vehicle subsidies in rural areas to revive demand after auto sales rose at the slowest pace in a decade last year. Combined with the country’s wider 4 trillion yuan ($585 billion) economic stimulus package, the policies have caused General Motors Corp. to roughly double its forecast for China’s nationwide auto market growth this year.

“Consumers are regaining confidence because of the government’s stimulus policies,” said Ricon Xia, an analyst at Daiwa Research Institute in Shanghai. “Still, vehicle sales may fluctuate in the coming months.”

Sales this month will likely be better than in February, Xiong Chuanlin, vice secretary-general of the automakers group, told reporters in Beijing today. The body is “cautiously optimistic” about full-year sales, he added.

Snow, New Year

The February sales jump, the biggest in 18 months, was also helped by an earlier Lunar New Year holiday. The weeklong break was in January this year compared with February last year. Snowstorms across much of China also disrupted the market in 2008.

Passenger-car sales, including sport-utility and multipurpose vehicles, rose 24 percent last month to 607,300, the association said. In the first two months, the tally climbed 5.8 percent to 1.22 million.

Sales of cars with engines or 1.6 liters or less jumped 19 percent in the first two months. Their market share gained by 7.71 percentage points.

Rising sales and production cuts by automakers has caused the nation’s stockpile of unsold vehicles to fall to the lowest in two years last month, the grouping said.

Commercial-vehicle sales fell 6.9 percent in first two months as the sector received less government support than passenger cars, the group said. Truckmakers are now seeking similar stimulus plans, it added.

GM Forecast

GM, the biggest overseas automaker in China, raised its forecast for the nation’s market growth this year to a range of between 5 percent and 10 percent from an earlier prediction of less than 3 percent, GM Asia-Pacific President Nick Reilly, said last week.

India, the world’s second-most populous nation, also had an increase in February auto sales, the first gain in five months, as emerging markets avoid the world of the global recession.

By contrast, GM is shuttering plants in the U.S. and seeking a government bailout on tumbling demand. GM’s domestic sales collapsed 51 percent in the first two months as the industrywide sales rate dropped to the lowest level since 1981 amid the recession.

In China, the government halved sales taxes on cars with engines of 1.6 liters or less starting from Jan. 20. It’s also providing 5 billion yuan in subsidies to spur auto sales in rural areas. That has particularly benefited GM’s SAIC-GM-Wuling Automobile Co. venture, the largest minivan-maker in China, Reilly said. The carmaker expects its own China sales growth to outperform the market by as much as 3 percentage points this year, he added.

Volkswagen AG, the second biggest automaker in China, said last month that it plans to double local sales by adding at least four new models a year until 2018. The carmaker sold 1.02 million vehicles in China last year.