South Korea’s Kia planning to take advantage of new Chinese tax cut image

Kia Motors Corp. which together with its larger Korean peers Hyundai is the world’s fifth largest automaker has envisioned higher sales by introducing smaller displacement engines in its model line-up in China.

The move follows the government’s decision to cut in half – from 10 to 5 percent – the purchase tax for the autos sold in the world’s biggest auto market with engines 1.6 liter or lower. The Seoul-based carmaker will introduce its 1.6-liter turbo engine on the K5 sedan and Sportage sport utility vehicle and also wants to add a new K2 hatchback in 2016 that could see growing demand due to the Chinese acquisition tax reduction. Chief Financial Officer Han Chun Soo added Friday up to 70 percent of Chinese sales by the brand represent smaller vehicles that can take advantage of the new government incentive. The new, smaller displacement powertrains will be key to Kia’s move to rekindle higher sales in China, which partially because of lower sales triggered a 16 drop in the company’s third quarter profit.

China has seen slower auto sales following a hiccup in the broad economic development and stock market unrest – but the government acted quickly and as of October has delivered stimulus measures – including the purchase tax cut and a pledge to further support new-energy vehicles (plug-in hybrids and electric autos). According to Han, Kia’s profitability in China should go up next year as the carmaker introduces the all new Sportage sport utility vehicle in early 2016 and the K2 later on. “We expect our plant operation ratio and market share to recover after benefiting from a tax break on our smaller vehicles,” commented the executive during a conference call to discuss earnings.

Via Bloomberg