The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading Bahamian auto dealer yesterday disclosed he had placed western New Providence expansion “on the shelf” as a result of the Budget’s tax increases, as some in the industry reported losing up to $800,000-$1 million per year.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told Tribune Business that with profit margins averaging just 2-3 per cent, and price controls imposed on all vehicle and part sales, the Business Licence fee increase would impact the sector in the same way as food stores.

With most BMDA members looking at an increase in Business Licence fee rates from 0.75 per cent to 1.25 per cent, Mr Albury described this as “a big pill to swallow”.

Questioning whether this, the new Excise Tax structure and other tax increases “might be the straw that breaks the camel’s back”, with many dealers hanging on and trying to avoid redundancies, Mr Albury said the Bahamian auto industry was “really hurting”.

The BMDA yesterday issued a statement calling for Business Licence fees to be applied to net income, as opposed to top-line turnover, describing this as a “more reasonable approach”.

Responding to former finance minister, James Smith, who had said the Budget’s Business Licence increases would ‘not break’ the private sector, the BMDA said the industry’s price controls meant it was impossible “to increase goods to compensate for this increased cost of doing business”.

And it added that auditors had advised it there were only “limited means” to legally minimise taxes.

The BMDA message is: ‘If we make money, tax it. If we lose money, there’s no taxes to be had.’

Exposing the ‘real consequences’ of the Business Licence fee increase, Mr Albury, the Auto Mall, Executive Motors and Omega Motors head, revealed to Tribune Business that he had placed expansion plans on indefinite hold

“I was looking at something in the western part of the island to expand, to cater to customers out there, but it’s going to be put on the shelf for the time being,” he said.

Assessing the overall state of the auto industry and its members, Mr Albury said: “In our business, you can turn over $10 million a year and not make a dime. In order to make money, you’ve got to turnover a lot of money.

“My expenses here run at about $200,000 a month between rent, payroll, Business Licence fees and electricity. We’re also under price controls.

“The maximum mark-up we’re allowed on new cars is 25 per cent, although very seldom do you make that on the gross,” he added.

“The average gross mark-up is 15 per cent on new vehicles, and our net is very thin. The net in this industry, if you make 2-3 per cent at the end of the year, you’re doing damn good.”

The auto industry’s Business Licence fee rates increased from 0.5 per cent to 0.75 per cent in 2010, due to reforms enacted by the former Ingraham administration, with the 2013-2014 Budget’s reforms promising to take it to 1.25 per cent.

Mr Albury said the Business Licence fee increases had to be set against the context of all the other tax and fee increases that have battered the auto industry, and the rest of the private sector, over the last three-four years.

These included, he added, increases in Excise Tax rates and National Insurance Board (NIB) contribution rates, plus revised real property tax assessments.

Mr Albury said the latter tax increased from $20,000 to $75,000 on his service and parts building, and from $4,000 to $12,000 on his showroom.

“When you couple that with group medical insurance, and there was a big increase in that, what’s going to happen now is that it’s going to be counterproductive to employment,” Mr Albury told Tribune Business.

“I’ve got to maybe start cutting back, looking at early retirement and maybe some heads to make up the difference. We’ve been holding off, hoping and praying for better days.”

While the Korean new car brands, Kia and Hyundai, had performed well under the post-2010 Excise tax structure and favourable foreign exchange regime, Mr Albury added: “All the others [dealers] are really hurting.

“There’s one company, which I won’t name, that’s been losing $800,000 to $1 million a year.”

When asked why this dealership had not closed down, Mr Albury added: “It’s only because the owners are quite well off, due to some of the other companies of theirs.

“But there’s going to be a breaking point where they say: ‘To hell with this.’”

Returning to his own business, Mr Albury said his Freeport operation had been “hanging on” and had managed to “turn the corner somewhat”, with all 16-18 staff retaining their jobs.

Abaco, while “really struggling”, had not seen any lay-offs, but Mr Albury said of the industry generally: “This [Business Licence fee increase] might be the straw that breaks the camel’s back.

“Someone might say: ‘I have to close this one and consolidate with another company to make ends meet’. The Business Licence fee is going to be a hard pill to swallow.”

Reiterating that the auto industry’s new duty structure would push Bahamians to used car purchases, Mr Albury said he could move into this space and abandon new car sales, yet it would come at a price.

Such a decision, he explained, could “put 30 people out of work because we only need five people for a used car operation”.

In its release, the BMDA said: “For companies with a high turnover and minimal profit, like the automotive industry, the Business License Tax comes directly off the bottom line.

“In some cases the new taxes will amount to more than net profit without drastic measures that might include lay-offs, salary and benefit cuts etc, measures many automotive firms have been avoiding as good corporate citizens. Could closure be far behind for some struggling enterprises?”

And it added: “New vehicle sales, the industry’s bread and butter, dropped 62 per cent in 2008 and most of us have been struggling to recover ever since.

“There are two retailers that are currently enjoying good levels of sales, so they might still remain profitable after paying the additional taxes, but as the old saying goes, the wind does not blow in the same direction all the time.”