VAT rate cut signals positive changes for vehicle market, consumersmers

The value-added tax (VAT) rate cut in China’s manufacturing sector is set to benefit the auto industry by way of lower costs. Meanwhile, foreign automakers’ adjustment of their sticker prices will keep pace with the tax change, even though the size of the reduction is “not satisfactory” to netizens.

Three foreign automakers announced Tuesday they would cut sticker prices by varying degrees, quickly responding to China’s reduction in the VAT rate from 17 percent to 16 percent, which came into effect on the same day.

German premium car maker Mercedes-Benz announced in a statement sent to the Global Times on Tuesday that it had cut the suggested retail prices of its vehicles. The cuts amount to about 1,000 yuan ($158) to 2,000 yuan for Smart brand cars.

Mercedes AMG models prices could fall by as much as 32,000 yuan. The most expensive AMG model could cost up to 3.7 million yuan in China, according to data from domestic industry site pcauto. com.cn.

On the same day, British carmaker Jaguar Land Rover said in a statement that its vehicle prices in the Chinese market will be adjusted accord- ing to the tax rate change, with a maximum cut of 20,000 yuan. US automaker Ford’s luxury Lincoln brand said Tuesday that its five models will be priced 2,600 to 10,000 yuan lower.

Yet price cuts of several thousand yuan were deemed by netizens as “doing little” and “showing no sincerity” compared with the high sticker prices of these luxury vehicles, which usually cost anywhere from several hundred thousand yuan to 1 million yuan.

The coin has two sides, and the other one is that these automakers are making a friendly gesture to the market and might use the VAT cut to conduct promotions for some models that are not selling well as the domestic luxury vehicle segment stagnates.

It’s up to the automakers how they balance their pursuit for profits and their willingness to pass on cost savings to consumers.

The companies can just leave prices as they are and earn more profits.

At present, the Chinese government charges a 25 percent tariff on all imported cars, plus value-added tax and consumption tax. There are also transportation and logistics costs. Added together, these factors make imported cars much more expensive than those of domestically produced models.

Apart from the costs, the demand of China’s middle class for premium brands is another reason that prices for these models stay so high.

It is likely that more foreign automakers will adjust prices, especially if their competitors have done so.