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Tax hike boosts prices of big cars

By Yu Hongyan (chinadaily.com.cn)
Updated: 2008-09-02 15:29

The considerable discount of the Chrysler 300C 3.5L/3.7L and Dodge Caravan 3.0L has shrunk and a sales manager at a  Chrysler dealership said that from September 1, all his vehicles will sell at prices after the tax rise regardless of their importation date. 

 

It is not the first adjustment of consumption tax since its debut in 1994, however, judging from the extent of the tax rise, it is introduced this time, with a signal to curb consumption on big cars and to promote smaller ones in an effort to save energy and reduce pollution. 

In a report in China Business News, both the  auto importer Jia Bing and the industry analyst Zhao Ying agreed the rising cost of vehicle ownership will affect the market mainly in terms of consuming psychology. But they did not see eye to eye on the duration of the influence. 

Jia, the auto importer expects a wait-and-see period after the adjustment after which the customer group will stay and adapt to the change and the market will recover 2-3 months later.  

Zhao, the analyst from the industrial economy institute under the Chinese Academy of Social Sciences, believes that it will pose a lasting influence on the overall market as consumers may take the government’s subsequent policy into account. 

The anticipated effect of the taxation adjustment to curb consumption on big cars while promoting smaller ones will be a limited one, believed Jia and Zhao.  

It may restrain the overall consumption of big cars to some extent but as it works only on the purchasing phase, the effect will be narrowed unless the government carries out supportive regulations and measures, such as raising fuel tax, or introducing environment tax on SUVs.  

The two experts also suggested extending the definition of “small engine capacity” to 1.6L, as this is the most salable engine capacity for consumers and is also favorable for energy saving. The importance of technical innovation to make better use of oil, was also stressed. 

Auto manufacturers change their tempo in response to market situations, but as the experts added  big cars take a relatively small slice of the whole market. They reckoned the partial adjustment will have limited effect on production and sales in the long run. 

"A 10 to 20 percent rise in vehicle prices is acceptable to me, but it undoubtedly affected my purchasing plan," said Li Mo, a consumer. "I won’t give up buying a vehicle and I will make a decision sooner or later when I learned the market," Li added.

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