Car sales party seen winding down with expiry of tax cut

Automakers partying to record sales in China this year are set for a reckoning in 2017, with deliveries poised to expand at a third of this year's pace. The reason: an increase in a sales tax affecting the biggest segment of the world's largest auto market.

China raised the sales levy on small-engine cars to 7.5 percent on Thursday, curbing an incentive that has propped up the industry that's headed for its 26th consecutive annual expansion. While the tax rate is less than the 10 percent originally scheduled to take effect from January, it is still an increase from the 5 percent rate introduced in October 2015.

The tax reduction can translate to savings equivalent to a few months of gasoline on a new 119,800 yuan ($17,350) Ford Escort sedan, prompting buyers of small-engine cars to bring forward their purchases ahead of the expiration of the tax cut at the end of this year. Vehicles deliveries are on track to rise at least 13 percent in 2016, according to the China Association of Automobile Manufacturers. The increase in deliveries will slow to a range of 4 percent to 5 percent next year, based on the average of four estimates by analysts and industry association officials compiled by Bloomberg.