Tax Breaks Drive Up Japan's Hybrid Car Sales

by Mary Swire, Tax-News.com, Hong Kong

03 August 2009

Japanese government incentives, tax exemptions, and higher gas duties are fueling a surge in hybrid car sales – and leaving the beleaguered US automobile market behind.

Speaking to HybridCars.com, Reid Heffner, alternative transportation analyst at Booz Allen Hamilton, said that Japan has the “right combination of factors” in its hybrid gas-electric vehicle market: “new product, government incentives, and gas prices in the USD4.50-a-gallon range.”

“The Japanese government has created the right mix of policy measures – including a tax exemption for hybrids and a substantially higher levy on gasoline than in the US – that give hybrids a durable financial advantage over conventional vehicles,” Heffner added.

Japan’s hybrid vehicle sales have soared as incentives such as a scrappage scheme, tax breaks, and lower running costs have become more widely available to cost-conscious consumers. There are even waiting lists for some of the most popular models – and all this during Japan’s worst recession since World War II. Japan now has the world’s largest hybrid vehicle market, having lagged behind the US market for some years, although in the United States it was Japanese autos that led the market.

Three Japanese carmakers, Nissan, Honda and Mazda, have recently posted better than expected results, after manufacturers drastically cut costs and production as the world recession took hold. Combined with green vehicle incentives and lower running costs, this has led to a push in hybrid auto sales. Honda’s small Q2 profit, following heavy losses in Q1 2009, was assisted by better-than-expected sales of its Insight hybrid, at around 10,000 per month. In June, the popularity of the Insight was nudged aside by Toyota’s popular third-generation Prius.

The car manufacturers believe that, when the government incentives are phased out, hybrid vehicle sales will remain strong because of high fuel prices and consumers looking to keep their spending down.

While the US government has recently provided grants to its struggling automobile manufacturers, its focus is on plug-in electric vehicles. It remains unlikely that the United States will introduce some of the incentives, such as higher gas duty, instigated by the Japanese government to enhance hybrid vehicle sales.

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