The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian auto dealers plan to introduce labels that will allow consumers to compare current prices with those post-VAT implementation, Tribune Business was told yesterday, with buyers warned to brace for 4-5 per cent increases at least.

And Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told this newspaper that with initial estimates suggesting that Value-Added Tax (VAT) would cut gross profit margins by 8 per cent, the industry was bracing itself for a “hard hit”.

Given the added complications caused by the price controls imposed on vehicle (new and used) and parts mark-ups, Mr Albury said VAT risked eliminating the already-thin 2-4 per cent net profit margins that sector players normally enjoyed in a good year.

He confirmed that at the BMDA’s meeting on Monday, members agreed that once the Government released the long awaited revised Tariff Schedule, they would place labels on all cars available for sale showing both the current price and post-VAT prices.

“That is the intent as soon as we can get the Tariff Schedule, what the Excise Tax rates will be in a post-VAT environment,” Mr Albury confirmed.

“Once we have that we can do the mark-ups and sensitise the public as to what it’s going to be in a VAT environment. We will put price stickers on vehicles with what today’s prices will be, and what prices will be post-VAT.”

And he added: “All the modelling we’ve done to-date shows a 4-5 per cent price increase with VAT, and a reduction in gross profits by about 8 per cent.

“It’s going to be a real hard hit for our business, the auto industry, and one that’s going to apply to pretty much everybody, especially for those businesses under price control.

“The modest mark-ups we’re doing at the moment, it’s putting us, the car dealers, at a serious disadvantage on gross profit. We’re seeing shrinkage on that.

“It’s either that you sell more, which is unlikely, or cut expenses, which is more likely. People close to retirement will have to retire, we’re not going to hire and may have to combine jobs,” Mr Albury said, hinting at potential auto sector job losses if VAT cuts consumer demand and raises living costs.

“When you’re in an industry such as ours, the net profit is 2-4 per cent at the end of a fiscal year, a good year. With the increase in Business Licence fees, the VAT causing gross profit to shrink, it’s going to be pretty difficult out there. The business model is going to change to fit the environment, and it’s not going to be nice.”

Mr Albury said the auto industry was updating its software to ensure it was compatible with the accounting demands VAT will impose.

While this was unlikely to create difficulties for his businesses, Auto Mall, Executive Motors and Omega Motors, and other large dealers such as Quality Auto, Nassau Motor Company, Friendly Ford, Bahamas Bus and Truck and Sanpin, Mr Albury said the enforced transition might raise “issues” for others.

He added that each BMDA member also planned to educate, and sensitise, their staff to VAT’s likely impact as soon as the final Bill and regulations, plus Tariff Schedule and economic models, were released.

Mr Albury said the dealers would inform staff about the likely impact on both the business and their own lifestyles, given the drop in living standards and disposable income.

“We will make sure they know what it’s all about,” he added, suggesting the message would be: “Don’t come knocking at my door for a salary increase because the cost of living’s gone up 10-15 per cent.”

“Some people perceive this as a tax on business, but it’s a tax on consumers, and we’re all consumers,” Mr Albury said. “If you’re earning $300 a week, you’ve just lost $45 of your salary and buying power.

“The lifestyle you had before VAT is going to alter considerably. A lot of small businesses are going to take it on the chin because people do not have the disposable income to go around the restaurants and party like they used to.

“The freedom and lifestyles we’ve become accustomed to over the years, things are going to fade away,” Mr Albury added. “You’re going to have government from the womb to the tomb, and unfortunately it’s going to create a society of entitlement.

“They say they’re going to build social safety nets for the poor. Why is government doing that? Because they are making the poor, poorer with this tax.”

Mr Albury also warned that Bahamian society was likely to bear an increased cost associated with a crime upswing, resulting from the decline in living standards and price increases post-VAT implementation.