Auto dealer optimism up despite 13% drop

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

New auto dealers are shrugging off last year’s 13 percent sales slump to take a “more optimistic” view of 2019 amid hopes that the budget’s duty cut benefits will finally “kick-in”.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, yesterday told Tribune Business he expects the full impact from the 25 percent duty rate for vehicles with engine sizes of 1.5 litres or less to be felt in the 2019 second half.

He explained that the delayed effects were due to a “12-month turnaround” faced by the sector, which first had to “flush out” older, higher-priced vehicle inventories before “building a pipeline” to replace them with models set to benefit from the 40 percentage point excise tax rate reduction.

Pointing to a recent increase in consumer “floor traffic” at new car dealerships, and the improved tourism industry outlook, as further cause for renewed optimism, Mr Albury said the “ball is the court” of the Ministry of Finance over industry calls to include vehicles with larger engine sizes in the 25 percent tax bracket.

Several dealers have no models with engines of 1.5 litres or less, and the BMDA has been lobbying for the threshold to be increased to cover autos with engine capacities of between 1.6 to two litres. It has argued that such a move would be more equitable in ensuring all dealers benefit from the excise tax reduction, as opposed to only those with the right-sized inventory.

Mr Albury floated the possibility of creating a new Excise Tax rate for vehicles with engines between 1.6 to 2 litres, suggesting they could be taxed at a compromise rate of 45 percent. This would result in a three-tier structure for the auto industry, with taxes set at either 25 percent, 45 percent or 65 percent depending on engine size.

The BMDA chief, reiterating his long-standing concerns about the continued inflow of used Japanese vehicles into The Bahamas, said the need for consumers to have access to affordable vehicles needed to be “balanced” with the negative effects for the environment and government’s revenue.

Suggesting that vehicle ownership costs in The Bahamas paled in comparison to those in other jurisdictions, Mr Albury said Bahamians too often “want something for nothing” - desiring top-class roads and transportation infrastructure but not wanting to pay for it.

Still, he told Tribune Business that there was more cause for industry optimism this year even though 2018 sales were less than one-third of what they were at the new auto industry’s peak one decade ago - a time when it sold almost 400 vehicles per month as opposed to

“We’re seeing a little bit of an uptick for our group of companies, but in the overall picture for the year the industry was down about 13 percent for 2018,” Mr Albury revealed. “Rick [Lowe, the BMDA’s secretary], tallied the numbers this morning and I think we were probably under 1,400 units in total.

“That’s just over 100 new cars going out a month compared to 2008 when we sold around 4,500 units. In 2017, we sold 1,500 and some. It’s been a bit of a decline, but hopefully the adjustment made in duty rates last year will kick-in this year. The year compared to 2017 was down roughly 13 percent but we sort of anticipated it.”

Mr Albury said the delayed impact from the Excise Tax cut for smaller, more economical vehicles, stemmed from the nature of the auto industry’s supply chain and time lags associated with placing orders with manufacturers half a world away.

“It’s taking time to flush out old inventory with larger engines at higher tax rates, and replace it with new inventory with smaller engines at lower rates,” the BMDA president explained. “The turn around is going to be 12 months.

Pointing out that dealers could only start this process once the 2018-2019 Budget took effect from July 1 last year, Mr Albury added: “There’s a lag time to getting orders in, and factory allocations are going to take six months.

“It’s going to take time, but what was done is going to be beneficial to the industry.... To find product at 1.5 litres or less, and get it in here, you need to build a pipeline of inventories coming in.”

The BMDA president said production shifts by some of the brands sold by his Auto Mall business had extended this time lag, with Hyundai’s lead time standing at six to seven months after it shifted more manufacturing from South Korea to India. It was the same for Toyota, which has moved more production to Indonesia.

Mr Albury, though, conceded that good fortune had enabled him to start reaping the benefits of the 25 percent Excise Tax rate almost immediately. “The year ended with a bit of a bang for me at Executive Motors in that we had a new, small SUV in, and that helped prop up my numbers as far as units were concerned,” he revealed. “That kicked off in July, so the timing was perfect.

“On the BMW side, because they can get product at 1.5 litres we’ve seen an uptick as well. Overall, I would say the floor traffic has picked up somewhat. There seems to be some interest out there, along with commercial vehicle resupply sales.

“I think going forward this year, 2019, I’m going to be a little bit more optimistic. The indicators are there. The economy, tourism, is picking up a bit and so forth. I’m going into the year positive; my wife says I’m so negative, and that I should be positive for a change. That’s what I’m doing; staying positive. If my thinking changes I might see it in my pocket.”

Mr Albury told Tribune Business that the BMDA had made the case for expanding the lower Excise Tax rates to catch more engine sizes, with the decision on whether to do so now resting with the Minnis administration.

“Talks have been ongoing,” he confirmed. “I think the consideration is being given, so it’s just a matter of timing out there. If they’re going to do something, hopefully it’s sooner rather than later. We sort of made the case, gave them some data. They asked for some things and we passed them on, so the ball is in their court at the moment.

“The best case scenario is we get up to 2 litre engines at 25 percent, but a compromise might be anything between 1.5 and 2 litres, create a new category at 45 percent say, so you have three brackets - 25 percent, 45 percent and 65 percent.”

Mr Albury argued that these Excise Tax rate reductions would be a win-win, not least for consumers who would have to pay less for a new auto. This, in turn, would potentially open up the market to more buyers and increase sales, aiding both the industry while growing the Government’s tax take from the sector.

It would also shift the new car sector from a high-margin, high-priced business to one that was more volume based, but Mr Albury suggested this was what is required to revive the industry from a 10-year slump and preserve jobs.

Widening the tax cut’s scope, BMDA members having previously told Tribune Business, would slash as much as $10,000 off a new vehicle’s total price. And it would also spread the tax cut’s benefits more equitably among industry participants, as more dealers will have models that qualify.

Mr Albury said the Excise Tax and VAT generated by new car sales considerably surpassed what the Government earns from used cars that have come to dominate the market, as he again expressed concern at the revenue and environmental impact from vehicles he described as “disposable transportation”.

“I understand the plight of the consumer, the economy being what it is, and the need for transportation, but there has to be a balance with the environment and the need to pay for transportation,” the BMDA president added. “We use roads, signage and so forth. We are a people wanting something for nothing.”

Citing Japan, he said Tokyo residents are unable to own a car unless they can prove they have a parking space. And, once vehicles were five years or older, it cost $1,500 to take them through the Japanese inspection process and keep them on the road, which was why so many acquired new cars after seven to eight years.