China’s demand growth to outweigh impact of end of tax breaks

Carmakers, including General Motors Co., Geely Automobile Holdings Ltd. and BYD Co., said that the rising demand for cars in China will overshadow the impact from the end of tax incentives. According to Geely and BYD, new models and other government measures that back car sales will offset a higher sales tax recently announced by the government. Last week, Kevin Wale, GM’s China president, said that deliveries will increase, boosted by the nation’s economic growth and the rising number of new car buyers.

Wale added that even when government incentives will be removed, there is still a “tremendous underlying demand.” China’s industrywide vehicle sales rose by 46% last year to 13.6 million and 34% during the first 11 months of 2010 due to measures such as consumption-tax cuts, subsidies for rural car-buyers and incentives to trade in older models.

China will raise the tax on vehicles with engines of 1.6 liters or smaller to 10% from 7.5% next month. In 2009, the tax was 5%. China’s total vehicle sales including trucks and buses jumped to 16.4 million in the first 11 months of 2010, according to the China Automobile Industry Association. It’s expected that auto sales will rise to 18 million units this year, giving it the title of the world’s largest auto market for the second consecutive year. [via autonews]