The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian auto dealers yesterday said they feared Value-Added Tax (VAT) would combine with a flat economy to create “another perfect storm”, with new car sales still 45 per cent below their 2007 peak.

Rick Lowe, Nassau Motor Company’s (NMC) operations manager/director, told Tribune Business that the minor 2.63 per cent year-over-year increase in new car sales for the first nine months of 2014 was “really nothing” when assessed on an industry-wide basis.

With 1,721 vehicles collectively sold by Bahamas Motor Dealers Association (BMDA) members to end-September 2014, the year-over-year rise amounts to around 45 units.

Mr Lowe said that growth would be great for a single dealer, but did not amount to much for the sector as a whole.

And he told Tribune Business that there was a “stark difference in the profitability” of the Bahamian auto industry now compared to the 2007 “banner year”, when 4,165 vehicles were sold - some 2,40-plus more units than current year-to-date sales.

Now, with 7,5 per cent Value-Added Tax (VAT) looming on the horizon, the NMC executive said the sector feared this would combine with a still-recovering economy and a sluggish credit market to further dampen new car sales.

“If credit is harder to get, and prices are increasing, it looks like another perfect storm if I’ve read the tea leaves right,” Mr Lowe told Tribune Business.

“From an industry perspective, will we see some amalgamations, some closures? I don’t know. It goes back to the same question: How long can you tread water?

“If the Government is unwilling to concede they’re taxing us into oblivion, I’m not sure where to turn.”

Mr Lowe added of the 2.63 per cent year-to-date increase in industry sales: “Really, in the scheme of things, it would be nice to add to any individual dealer’s sales, but as a composite of all it doesn’t amount to much.

“It’s [the market] more or less remaining flat. There’s a stark difference in the profitability of businesses from 4,000-plus units to 1,700 units. For me, that’s something the Government doesn’t understand. To tax you more than your net profit is not a reasonable proposition in times like this.”

Mr Lowe reiterated that the Kia an Hyundai brands, aided by the Korean currency’s relative weakness against the US dollar and lower import tariff rates (hence lower consumer prices), remained the only “bright spot” in the market with a “commanding share”.

Passenger vehicles account for 42 per cent of all BMDA member sales, while sports utility vehicles (SUV’s) have a 43 per cent share. Commercial vehicle sales “remain sluggish” at a 15 per cent share.

Mr Lowe yesterday said commercial vehicle sales used to account for 20-plus per cent of the new car market, and he attributed the decline to the former Ingraham administration increasing their import duty rate to 85 per cent.

It has since been brought down to 65 per cent, and the NMC operations manager added: “It shows the higher the taxes, the more you distort market activity and those that pay their proper taxes, plus businesses that are accountable.”

Ben Albury, Bahamas Bus and Truck’s general manager, told Tribune Business yesterday that he anticipated profit margin reductions of up to 10 per cent as a result of VAT.

This, he explained, is because the industry is price controlled, meaning it cannot pass any cost rises along to consumers.

And, while he had seen an increase in “interest” from potential buyers, this has yet to translate into increased sales - as the BMDA is hoping.

The industry is anticipating increased sales in the 2014 fourth quarter as consumers look to exploit lower auto prices before VAT’s implementation.

But Mr Albury said: “The only thing that we’ve really found different is sales have got a lot more sporadic. It’s very difficult for planning and ordering. One day you do nothing, the next day you sell two or three.

“Two or three years ago it was more consistent..... The game has changed.”

While Bahamas Bus and Truck had seen “a lot of people expressing interest” in auto purchases, “it hasn’t really translated into more sales,” Mr Albury added.

He said Bahamian consumers and businesses would have to go through an “inevitable” period of adjustment to higher living costs once VAT was introduced, and added: “Our profit margins will be reduced, in some cases by about 10 per cent, and because we’re price controlled we don’t have the ability to pass that on to someone else.

“From a business perspective, the company will have to absorb a lot of those [margin] losses, and we’re fighting a tough battle already. It will be interesting to see how impactful VAT is, both from a consumer and business standpoint.”

Mr Albury said that while the auto industry was grateful to the Government for changing the method for calculating Excise Tax to Freight on Board (FOB), as opposed to Cost, Insurance Freight (CIF), this would only “minimise” - not completely eliminate - VAT’s effects.

Mr Albury said that in common with other Caribbean nations that have implemented VAT, he was expecting a 20-30 per cent reduction in new car sales over the 2015 first half.

“We would hope that tapers off after six months,” he added. “There will definitely be a knee jerk reaction initially.”

Asked when auto industry sales would recover to 2007 levels, Mr Albury replied: “Your guess is as good as mine on that. It will probably be four to five years before we see that type of action.

“We have a long way to go to get there, and from what I see now, there’s not a lot of confidence in the market.”

The Bahamas Bus and Truck executive said the increased activity the company was seeing on its higher-priced vehicles was not enough to offset the drop on mid-priced and lower end models.

“We’re trying to focus on the bright areas and work on the weak ones. We can’t be swayed and have to continue,” he added.