End of government subsidies to hurt 2013 new car sales in Japan

From The Asahi Shimbun, February 01, 2013

New car sales in Japan will drop by 11.7 percent in 2013 from the previous year due largely to the expiration of government subsidies for eco-friendly cars, according to an industry report.

A production line of Toyota Motor Corp.'s eco-friendly car Aqua photographed on March 9, 2012, in Kanegasaki, Iwate Prefecture. Sales of the Aqua greatly contributed to domestic sales increase of gas-electric hybrid vehicles in 2012. (Asahi Shimbun file photo)

The report, released by the Japan Automobile Manufacturers Association on Jan. 31, predicts sales of 4.744 million new vehicles this year.

In 2012, domestic new vehicle sales rose by 27.5 percent to some 5.37 million units--the first time in four years that sales have reached 5 million units. The government subsidies for the purchase of eco-friendly cars, which were reintroduced at the end of 2011, were largely responsible for the sales increase.

But the subsidies expired in September, and the policy's effect will not contribute to this year's sales.

The sales in 2013, excluding minivehicles, will fall by 13.2 percent to 2.944 million units, the first drop in two years, according to the report.

Minivehicle sales, which rose by about 30 percent last year due to consumers’ preference for compact cars and the successive introduction of new models, are also expected to decline for the first time in two years, by 9.3 percent to 1.796 million units.

The government plans to raise the consumption tax to 8 percent in April 2014. The report’s prediction is based on an assumption that there will be no last-minute demand for new vehicle purchases in 2013 because the automobile acquisition tax is expected to be reduced at the same time.

But the government has not indicated when the rate of the tax reduction will be decided, and both the rate and the timing of the decision can alter sales in 2013.

The ruling parties' tax reform outline for fiscal 2013 states the government will reduce the automobile acquisition tax in April 2014 and then abolish it in October 2015 when the consumption tax rate rises to 10 percent. But alternative revenue sources, along with the reduction rate, have not been decided.