Chinese automobile production and sales rose slightly in October compared to the same period a year ago, according to the China Association of Automobile Manufacturers (CAAM), reaching 2,604,000 and 2,704,000 units respectively, up 0.7% and 2% year-on-year.

Production and sales of passenger cars reached 2,225,000 and 2,352,000 units respectively in October, down 2.7% year-on-year in production, but up 0.4% year-on-year in sales.

For the first 10 months of 2017, production and sales of passenger cars were 19,553,000 and 19,502,000 units respectively, up 2.3% and 2.1% year-on-year, 2 percentage points lower than the overall growth. By passenger car type, only SUVs posted continued growth, with production and sales up 15.5% and 15.8%, while other segments declined. Sales of passenger cars with engine capacity of 1.6L and below reached 13,336,000 units, down 2% year-on-year, 2.9 percentage points lower than the same period last year. This segment accounts for 68.4% of total passenger car sales in China.

This trend of decelerating volume growth and falling margins is likely to continue in 2018 due to China’s recent negative tax policy, with vehicle purchase tax rising from 7.5% in 2017 to 10% in 2018.

The vehicle purchase tax increase has not only triggered notable front-loading demand in the fourth quarter but has also lifted total vehicle down payment by car buyers by 2.5% effective 2018, according to a report from Credit Suisse.

Credit Suisse says it expects large-sized engine vehicles (engine size >1.6L), especially luxury brands, large SUVs and new Chinese high-end brands, such as Brilliance and GAC, to outperform the market due to their immunity to the small car vehicle purchase tax rate rise and more upgrade demand push.

The combined sales of China’s top 10 automotive enterprise groups accounted for 88.5% of total sales in China reaching 20,282,000 units during the first 10 months of 2017, up 4.1% year-on-year, in line with industry growth, CAAM said.