The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian auto dealers yesterday described the 26 per cent decline in 2013 first quarter new car sales as “a bit shocking”, with volumes dropping by more than units year-over-year.

And, with the sector facing another overhaul to its Excise Tax structure and increased Business Licence fee, numerous dealers told Tribune Business that the business environment was set to become “even more challenging after July 1”.

A Bahamas Motor Dealers Association (BMDA) statement yesterday confirmed new car sales for the three months to end-March 31, 2013, were down year-over-year by 26.47 per cent - more than a quarter.

The BMDA, which represents the new car industry, said commercial vehicles “took the biggest hit” with sales down year-over-year by 35.79 per cent.

In what turned out to be a broad-based decline, apart from the Korean brands, Kia and Hyundai, passenger cars suffered a 25.8 per cent year-over-year decline for the 2013 first quarter, while SUV (sports utility vehicle) sales fell 23.6 per cent.

Rick Lowe, operations manager and a director at Nassau Motor Company (NMC), told Tribune Business that the first quarter decline reversed what had been a trend of modest improvement during the 2012 second half.

“Quite honestly, it was a bit shocking,” he admitted. “We had had a couple of quarters of some minor basis increases, and that seemed to bode well for the future, but in the last few months we’ve turned in the wrong direction.”

The auto industry, especially new car sales, is often seen as a ‘bellwether’ that indicates the strength of the underlying economy, in particular how robust consumer demand and credit availability is.

The 2013 first quarter performance indicates the latter two variables are anything but strong, which might again give the Government pause for thought with its Budget and economic forecasts.

Although unsure about what lay behind the industry’s relatively weak sales performance, Mr Lowe linked it to both the availability of bank financing and how long it was taking potential buyers to obtain credit approvals.

“Overall sales are down over 100 units quarter-over-quarter,” Mr Lowe told Tribune Business.

And he revealed that the Car Show, while producing its usual ‘bounce’ (temporarily at least), had only generated a 4.5 per cent improvement in April new car sales year-over-year.

And, with a second Excise Tax structure change and Business Licence fee increases on the horizon, Mr Lowe confirmed the BMDA was seeking a meeting with Ministry of Finance officials to discuss the impact this would have.

“We need to speak to them about how the Business Licence tax will impact us, and how the new tax brackets will impact us, so they can get a better understanding of how our business works,” Mr Lowe added.

“I don’t think they realise that even small, fuel efficient cars fall into a higher duty category. And they don’t seem to have taken inflation into account.”

He told Tribune Business that the increased Business Licence fee rates would have “a major, major impact” on the auto industry, with a number of dealers “very, very concerned” about it.

Pointing out that the sector was another ‘high turnover, low profit margin’ industry, Mr Lowe said: “Studies have shown that when you raise taxes on industry, that’s one of the worst taxes you can apply.

“It’s discouraging at the moment. We’re keeping our fingers-crossed that we can keep our heads above water with the over-burdening taxes. It’s certainly going to be a tough business environment.”

Mr Lowe’s sentiments were backed by his fellow dealers. Ben Albury, Bahamas Bus & Truck’s general manager, agreed that the switch back to an Excise Tax structure based on imported value, as opposed to engine size, would throw “99.9 per cent” of all new autos into the 75 per cent duty bracket.

This, he added, meant that his current “bread and butter” cars, all of which were more fuel efficient and had smaller engine sizes, would see their duty rates rise from 65 per cent to 75 per cent.

This was because they were all valued between $10,00-$40,000. Yet, on the other hand, ‘gas guzzlers’ with larger engine sizes will see a reduction in their duty rate from 85 per cent to 75 per cent with the duty structure change.

“You can’t keep flipping this thing back and forth,” Mr Albury told Tribune Business of the duty structure. “You can’t just keep flipping it from engine size to cost, and then back again. It’s crazy.”

He again called for dialogue between the Government and the industry to determine tax structures and rates, in a bid to hit that “sweet spot” that would aid sales and maximise government revenues.

In a personal written note sent to Tribune Business, Mr Albury said: “Under the new duties, vehicles under $10,000 benefit from a lower duty rate of 65 per cent.

“If the administration understood the market, they would know that this benefits used vehicles due to the fact that all new vehicles imported have a C.I.F. value in excess of $10,000.

“As a result of this smaller, more efficient vehicles that we were importing as our entry level or ‘bread and butter’ cars are now experiencing a higher duty, whereas larger, or luxury vehicles that experienced higher duty due to larger engines, are now paying 75 per cent duty as a result of the $10,000-$40,000 segment. Therefore, they have lowered in price.”

Summing up what this meant, Mr Albury added: “This will further encourage the influx of used, Japanese right-hand-drive vehicles to the market. As a result, we are experiencing what has happened in other Caribbean countries that have seen massive importations of used vehicles.

“The BMDA reports that new car sales have declined by 50 per cent and new car imports are down. As a result, government revenue declines and consumers have more challenges in obtaining financing - higher interest rates, shorter payment terms, higher costs for insurance and skyrocketing auto theft, fuelling the black market for used parts.

“Due to the age of these vehicles, the life span is short, resulting in more ‘junk’ on the roads and vehicles being abandoned after only a short time in service. These vehicles also have a greater impact on the environment through emissions, fuel economy and lack many of the modern safety features that newer vehicles provide.”

Andrew Barr, Friendly Ford’s sales manager, told Tribune Business that the BMDA’s 2013 first quarter sales data was “pretty much self-explanatory”.

Adding that it reflected the overall economic environment, Mr Barr said the data showed the Bahamian auto industry was “struggling”, and that the business environment would “be even more challenging after July 1” when the new duty structure and Business Licence fee increases took effect.