News Updates on Global Auto Industry
2009/02/25 | By Michelle HsuWith recent reports of declines in new car sales in China, the country is proposing an auto-industry stimulus package, including cuts in auto sales tax, easier access to auto loans, subsidized old-car-replacement purchases, raised rebates for auto parts export, among others, which are to take effect in early 2009.
To maintain tax revenues, China considers the auto-sale tax reduction the priority item among the stimuli, with the current 10% rate to be cut to five, or even zero for one or two years, a measure to help achieve the official goal of moving 410,000 cars out the dealers in 2009, which would generate 3.5 billion RMBs in auto consumption tax and another 6.8 billion RMBs in value-added tax for the national treasury.
The stimulus package also targets promoting car sales in rural and remote areas, with such measure to boost sales of smaller sedans and light-duty trucks suitable for narrower roads in less-developed regions; while the measure to subsidize vehicle purchases to replace older models would mostly benefit fleet operators, whose, for examples, taxis and trucks may be old and need replacing. The fact is that most taxis in Gwangzhou today are typically 10-year old or more, with even the 1984-styled Mark 2 Jetta still plying the roads in the Gwangdong provincial capital.
In addition to the C$3.5 billion auto bailout approved in mid-December 2008, Canada has on Dec. 20 agreed to lend another C$4 billion to the GM and Chrysler plants within its border, one day after the Bush Administration announced the US$17.4 billion loan for the American auto industry.
The conditional loan will have been granted to GM and Chrysler by the end of 2008, stipulating caps be placed on executive salaries and mandatory reporting of expenses exceeding C$125 million. "The conditional financial support is to help the automakers survive the current economic downturn which has seriously influenced the life of all Canadians," said Prime Minister Stephen Harper, who regarded it a "regrettable but necessary step to protect the Canadian economy."
"Canadian taxpayers now expect their money will be used to restructure and renew the automotive industry in this country and ensure that Canada maintains our current production share of the North American market," said the PM during a Dec. 20 press conference.
"It would help save around 400,000 jobs and the lives of around 400,000 families," said Ontario premier Dalton McGuinty, who presides over the eastern province with the biggest share of auto manufacturing in Canada.
During the Dec. 20 press conference, Harper announced two additional steps to support the overall competitiveness of the Canadian auto industry-automotive suppliers will have greater access to accounts receivable insurance through the Export Development Canada (EDC) coverage to compensate for the reduced availability of credit, and the government will create a new facility to enhance access to consumer credit, with particular attention paid to improving the availability of car loans and dealer financing.
The Canadian automotive industry contributes 14% to the country's manufacturing output, 23% of manufactured exports, and employs over 150,000 Canadians, so car-making is the biggest component within the country's manufacturing sector.
EU Rejects German Automakers' Plea Over Emissions
The European Parliament's environmental committee, which in September 2008 voted to cap carbon dioxide emissions from all new cars by 2012, rejected German carmakers Daimler and Porsche's demand for partial exemption from the tougher green standards to cut manufacturing cost.
German carmakers, whose vehicles such as the sporty Porsches, Audis and larger Mercedes are not known for being green, have bought themselves significantly longer grace. They could develop newer, more fuel efficient technologies; but they could also diversify their lines with a few compact cars or hybrids, reducing their average fuel consumption.
The Committee decided to impose the tougher emission standards in one step rather than bow to the German carmakers' demand for a 3-year phase-in until 2015. The vote sets up a showdown with Germany, which objects the draft EU rules that pit its premium brands against smaller, cleaner cars from French Peugeot, Citroen and Italian Fiat; while such measures will also affect non-European carmakers as General Motors, Toyota and Hyundai which sell cars in Europe.
The more stringent legislation forces cutting average CO2 emissions by a fifth to 130 grams per kilometer by 2012, stipulating various criteria for individual carmakers, with the heaviest vehicles having to make the biggest reductions. Based on 2006 emissions data, such proposal forces German carmakers to slash CO2 emissions by as much as 49%, compared with a maximum 15% for French and Italian makers.
Around 15 million vehicles are sold each year in Europe where cars emit more than 10% of the CO2. Mandating greener cars comes at a price however: the stricter policy is expected add about 1,300 euros or US$1,916 on average to stickers, due to the higher cost of the new technology and equipment.
Germany Suspends State Road Tax
In the wake of the 8% slump in car sales in October, the German authorities announced in early November 2008 the suspension of the state road tax on new cars purchased in the following 12 months to jump start the auto market. Costing 1.4 billion euros annually, the tax cut could be extended for another year if new car sales remain sluggish. "The measure will encourage consumers to purchase new cars in Germany where cars are on average eight years old," said Eckehart Rotter, spokesman for the auto industry federation VDA. "It will especially benefit larger cars whose sales suffer more amid a market plunge."
Meanwhile, the government has also worked out a financing package whereby the automakers with affiliate financial arms can apply for low-interest loans. BMW, for example, can ask for official guarantees while applying for favorable loans.
Despite being a former communist country, Slovakia is now known as "European Detroit" with an enviable auto industry over the past few years.
The Slovakian government has bred one of fastest growing automotive segments in the Central & Eastern European Region (CEE) by offering favorable tax rates and low-interest loans, with its carmakers' output mostly exported.
The third-largest car-making nation in central Europe, Slovakia saw its car production shoot up 93% in 2007, rolling out a record 570,000 vehicles that year, with the government estimating such figure will have eclipsed a new high of 610,000 units in 2008.
"We plan to employ more workers rather than cut production," said the Kia plant manager in Slovakia, where the Korean automaker started operations in 2006 and has since maintained high growth in production.
Based on past steady growths, the Slovakian government is targeting an annual growth of 4% for 2009, lower somewhat from the 7.4% in 2008 but still remarkable considering that most GM and Chrysler plants in the U.S. have been shut down for Jan. 2009, and the future for the Big Three still remains uncertain despite the recent bailouts.
Taiwan to Subsidize Old-car Replacements
The Taiwan Cabinet approved a proposal that allows any car owner to apply for a NT$30,000 subsidy to replace a 10-year-old car. The measure, effective from the beginning of 2009, supports the official policy to boost the sagging domestic auto market and reduce CO2 emissions, especially relevant on older cars.
The commodity tax, among those levied on various goods, on automobiles is the highest ranging from 25 to 30 percent, according to the Taiwan Transportation Vehicle Manufacturers Association (TTVMA), which estimates around 3.3 million cars 10-years-or-older are ready to be replaced.
In addition to the commodity tax, the 8.7% import duty on auto parts and 5% value-added tax bring the total tax payable to about NT$100,000 (about US$3,025) on buying a Taiwan-made 1,500cc-2,000cc sedan.
With 100,000 car owners enticed by the subsidy to replace aging cars each year, the TTMVA estimates not only new car sales would be boosted, but the national coffers would be refilled with NT$7 billion (about US$211.79 million) in tax revenues annually.
Uncle Sam Can Partially Own Big Three
The Bush Administration's US$13.4 billion bailout loan for the Big Three automakers approved mid-December may pave the way for nationalizing the American auto industry as the teetering automakers and their workers concede to the conditional financing.
The bailout approved by the White House gives the government the option to become a stockholder in the automakers, in effect partially nationalizing the industry.
General Motors and Chrysler LLC will first get the bailout loan in February, while Ford Motors claims to be solvent, but have to first agree to wage and work rule changes, effective by the end of 2009, to make them competitive against the southern U.S. plants operated by Japanese Toyota, Honda and Nissan.
GM and Chrysler must provide the government with stock warrants giving it the option to buy stock in the two companies at a specific price. In addition, the automakers would be required to agree to limits on executive pay and eliminate perks as corporate jets.
The White House gave the automakers three months to come up with restructuring plans to become viable. Without producing a plan by March 31, 2009, the automakers will be required to repay the loans, which would be very difficult.
In announcing the plan, Bush said the companies' workers should agree to wage and work rules that are competitive with foreign automakers' by the end of 2009. And, he called for the elimination of the "jobs bank" program - negotiated by the Union of Automotive Workers (UAW) and the companies - under which laid-off workers receive unemployment benefits and supplemental pay from their companies for 48 weeks. Early in December, the UAW agreed to suspend the program.
Vietnam Proposes Long-term Policies
"We need a clear tax policy compatible with a long-term and comprehensive development strategy to encourage the country's automobile production," Deputy Minister of Trade and Industry Do Huu Hao said in response to inquiries from auto industrial representatives during a press conference in November 2008.
At the conference co-sponsored by the Ministry of Trade and Industry and the Viet Nam Automobile Manufacturers Association (VAMA), auto manufacturers expressed concerns about frequent adjustments in the government's policies related to the automobile industry, especially tax policies.
"Frequent policy adjustment makes it difficult for automakers to make long-term investment plans," said Toyota Viet Nam general director Nobuhiko Murakami.
"The government recently adjusted its policies to raise the special consumption tax, import tax and registration fees which would harm the automobile market's development and negatively affect auto parts suppliers," said Hiroyuki Nakamura, Head of the Asia representative office for the Japan Automobile Manufacturers Association (JAMA). In reaction, Deputy Minister of Trade and Industry Do Huu Hao agreed to review the government's policy and promised to adopt a hands-off policy.