VAT cuts triggered luxury car price cuts

Recently, the Ministry of Finance and the State Administration of Taxation issued a "Notice on the Reduction of Value-Added Tax Rate", and the value-added tax rate for manufacturing and other industries will be reduced from 17% to 16%. Following the reduction of the national value-added tax rate, a number of car companies announced the official price cuts for their models.

Mercedes-Benz took the lead in announcing the "downfall." Mercedes-Benz said in the official price reduction document that “the suggested retail price of the vehicles for sale was reduced from May 1, 2018 onwards. According to the relevant national laws and regulations, the retail price of terminal products for automotive products shall be set by authorized Mercedes dealers.” It is understood that the price of Mercedes-Benz's various models fell between 1000-32,000 yuan, of which the Mercedes-AMG models fell more than 32,000 yuan.

Following Mercedes-Benz, Lincoln Motors has adjusted the market guidance price for all models in China. Price reduction models include Lincoln MKC, Lincoln MKX, New Lincoln Navigator, and Continental Continental. In a price reduction notice, Lincoln said: "As of May 1, 2018, consumers who purchase Lincoln models will enjoy the benefits brought by the VAT rate adjustment." Meanwhile, Jaguar Land Rover announced that its two brands, Jaguar and Land Rover, are in China. All models on the market will adjust the guidance retail price, the maximum drop of 2,000 yuan.

In the face of luxury car price cuts, BMW is not far behind. On May 2nd, BMW (China) and BMW Brilliance jointly announced that “Since the formal implementation of the new VAT tax rate, the manufacturer’s suggested retail price of the automotive products and motorcycle products sold in China has been lowered.” The range of products announced by BMW at the time of price adjustment covers not only BMW's brand, MINI brand and motorcycle brand, but also all imported and domestic models. The relevant person in charge of BMW (China) told the Beijing Commercial Daily reporter: “The dealers have already done notifications and the price cuts are between 1000-32,000 yuan, and they are all in accordance with the price reduction policy.”

Although the response speed is less than that of Mercedes-Benz and BMW, but Audi also announced last week that the official guide price for some of its A5, S5 car models has been reduced, the reduction range of 40000-60000 yuan.

In addition, for the reduction of tax rate, Porsche China official website also updated the model price, its models Macan, Cayenne, Panamera, 911 and other models have different degrees of price adjustment, a drop in 5000-35000 yuan range.

According to Cui Dongshu, secretary-general of the National Passenger Vehicles Association, in view of price reductions, the behavior of the luxury car makers in favor of consumers is more of a gesture because the profit margin increased by a 1% reduction in the value-added tax rate. Only about 0.8%, the stimulating effect on consumer demand is very limited, but the price reduction of many models does bring benefits to consumers.

It is worth noting that the auto companies involved in this price reduction are mostly foreign-funded high-end brands, and their own brands and joint venture brands have barely followed suit.

In this regard, the industry generally believes that as the profit level of most models of self-owned brands and joint-venture brands is still relatively low, if measures are fully taken to reduce prices, it will help the company in the short term, but after the next price discount or impulse, the car is The sales space will be smaller. With the lowering of the VAT rate, the costs of all aspects of the automobile industry chain will decline, and the follow-up auto companies will have greater room for profit in the vehicle price.

At the same time, the reduction of tariffs on domestic imported cars has become a foregone conclusion. If the tariff falls sharply when the policy is imposed, the high-end models of domestic self-owned brands and joint-venture brands will be seriously threatened by luxury car companies, and luxury car companies will certainly be like this. Like the price cuts, there is a new wave of price cuts. "At that time, the competition in the high-end auto market will further intensify," said Cui Dongshu.

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