By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

A leading auto dealer yesterday said he would “cut back” early 2015 inventory levels by 25 per cent due to VAT-related uncertainty, anticipating that sales might drop by 20 per cent.

Fred Albury, who heads the Auto Mall, Executive Motors and Omega Motors dealerships, told Tribune Business he would “err on the side of caution” over 2015 first quarter and first half orders, which he is preparing to place next month.

Predicting that VAT would increase vehicle prices to consumers, by around 5 per cent Mr Albury said he himself would “look a lot more closely” at the used car market if buying trends switched to this segment.

While expecting new car sales to rebound eventually as consumers adjusted to VAT’s impact on prices and their disposable incomes/living standards, Mr Albury said an initial “lull” was the inevitable consequence of “moving from a Mickey Mouse to real world tax system”.

“I’m gearing up for a 20 per cent reduction in sales initially,” the Toyota, Hyundai and BMW dealer told Tribune Business. “Based on scenarios that happened in other jurisdictions in the Caribbean, some said there was a 30 per cent drop [when VAT came in], others said 20 per cent.......

“VAT is going to increase the price and decrease sales. Based on the experience of car dealers in the Caribbean, there was an initial slackening in sales, but when people adjusted sales picked up, and pent-up demand caught up.

“But until that time, there’s a lull and that’s what I’m preparing for.”

To ensure he is not burdened with excess inventory in early 2015, Mr Albury said he was cutting back on New Year vehicles orders that he typically places in September and October.

“I’m reducing the amount of inventory I bring in for the first quarter and first half next year,” he revealed to Tribune Business. “I’ll run a lean inventory and see what happens.

“As of next month, what I order will be coming for January. I do have some fleet companies putting in major orders, trying to get product in before the end of the year.

“I’m probably looking at cutting back 20-25 per cent for the first quarter of the year. I’m going to fall on the side of caution.”

Mr Albury acknowledged that the decline in new vehicle orders would also result in a reduction in the Government’s tax earnings, both Excise Tax and VAT.

The BMDA president added that the inevitable VAT-related price increases would likely drive Bahamian consumers to both the ‘second hand’ or used car market, plus encourage them to source autos from the US and import them themselves, this avoiding the 7.5 per cent levy on the retail price.

“It’s going to force consumers to look more closely at used vehicles,” Mr Albury told Tribune Business. “They’ll say: ‘Why pay VAT on retail?’ They’re going to go to the US, bring a car back, pay VAT at the border and not pay the VAT on our profits.”

In response, he added: “I’ll probably look a lot more closely at used vehicles myself. If that’s where the market is going to go to, I’ll have to put a lot more effort into the used cars.”

Mr Albury, though, expressed confidence that the Road Traffic Department’s new software and vehicle titling system would prevent unlicensed auto dealers from bringing multiple vehicles back from the US.

“The new Road Traffic titling and vehicle registration system hopefully should be in place within the next eight months,” he told Tribune Business.

“Before a new vehicle is registered, you will have to prove you paid VAT on it. That will clamp down on individuals bringing in multiple vehicles and cause them to pay Business Licence fees.”

Acknowledging that VAT had been on the Government’s “drawing board” for a decade, Mr Albury said it was linked to the Bahamas’ bid for accession to full World Trade Organisation (WTO) membership.

“We’re getting to the point of transitioning from a Mickey Mouse tax system to the real world of paying taxes,” Mr Albury told Tribune Business.

“Everyone’s mindset when it comes to paying taxes, and the way we pay taxes, is going to change for ever.”