GOJ deaf to car dealers' tax-reduction appeal - ADA warns falling auto sales will kill jobs
Avia Collinder, Business Writer
The delayed effect of new import duties implemented in May is now being felt by new-car dealers, who warn that jobs will be lost without a rollback of the 50 per cent tax hike.
The dealers say the policy shift has resulted in a 30 per cent reduction in sales.
But, they are not getting much response from the Ministry of Finance, whose primary focus is finalising a bailout deal with the International Monetary Fund (IMF).
Finance Minister Dr Peter Phillips in May announced an increase in the Common External Tariff (CET) from 20 per cent to 30 per cent for motor vehicles with engines bigger than two litres, including SUVs and pickups.
The vehicles were part of a select group of imports, which also included jewellery and some alcoholic beverages, from which the Government aimed to raise J$1.95 billion of a new J$19.5 billion tax package.
Since the June 1, 2012 implementation of the new duty, dealers say volume sales have been sinking.
Kent LaCroix, president of the Automobile Dealers Association (ADA), said some dealers have maintained sales by sacrificing revenue, through "heavy discounting to get rid of accumulated stock".
LaCroix says the Government is likely to end up with less than J$6 billion in direct taxes usually collected from the sector.
But the Government has not been discernibly swayed by the argument.
"What we asked for in the Ministry Paper and presentation made to Parliament in February was that we understand the Government is having difficulties, we understand IMF discussions are taking place, but what we would like to propose is that no new duties be put in place for another year," said LaCroix.
"Give us a chance to prove that we can make more money," he said.
The ADA head was speaking against the background that the deal brokered between the last administration and the dealers was for J$180 million in additional tax collected in exchange for duty reductions.
Some J$480 million was realised instead, doubling the estimates for revenue, according to LaCroix.
Appeals to the current administration that additional revenue could be realised without increases have so far fallen on deaf ears.
"They have met with us, but we have not received much response. Meanwhile, revenue is going down in the new motor-vehicle segment," said the ADA president.
"We want to go back to duties as they were before May."
Up to May this year, he said, average sales for new-car dealers was approximately 540 vehicles monthly. Since June, sales have been averaging 435 per month.
"There are some dealers that are doing better than others - it all depends on what mix of vehicles they have," LaCroix said.
Still, financial analyst Dennis Chung is not sure that the current fall-off in sales is entirely the result of higher duties.
"While I agree that lower duties will result in greater demand, the reduction they are seeing is not just about higher duties. It is more influenced by the decline in the economy," said Chung.
The analyst, meantime, was not on board with a reduction in duties on all vehicles, saying that, as imports, autos consume foreign exchange.
"The logical thing to do is keep duties high on vehicles over a certain CC rating and bring to zero duties on fuel-efficient vehicles. This would mean more affordability for most and less fuel use," Chung said.
Stewart's Automotive Group reports that its sales are flat, which it links to the increased duties.
"The group finds itself in the position that our sales are flat and the pipeline of deposits are slowing. So rather than looking for growth to sustain our investment, we are looking at decreased revenue," said director Jackie Stewart-Lechler.
Mandate to create jobs
Adam Stewart, CEO of the ATL Group, has labelled the tax policy shift a potential job killer.
"When the duties where reduced, people were investing and employing people. That's what the Government's mandate is to do - to create employment. If your company can no longer manage overheads, of course it will start laying people off. This is counterintuitive to what we need as a people," Stewart said.
He said sales are down an average 18 per cent among brands sold by ATL's various dealerships, which are grouped under the ATL Automotives division.
Stewart said the company has reduced its margins on current stock in order to sell off inventory and make way for 2013 vehicles.
"We have to sell a certain number of cars every month to get to breakeven. In ATL, we have seen a fall of 18 per cent in sales. We have also ended up with a lot of excess stock," he said.
"We have cut our margins to nothing just to sell and get rid of cars. Effectively, this decision has cost my company eight months of its bottom line. We are all bleeding - we have people to pay, insurance costs to meet, mortgages to be serviced. We are selling less cars because people can't afford J$800,000 more or J$700,000 more on a Honda," said the ATL CEO.
LaCroix says 2013 might see staff cuts, if not closures.
The association said about 5,000 are employed by new-car dealers.
"Already we are seeing a decline in the volume of vehicles imported by each dealer and, naturally, fewer units of vehicles in their inventory. Vehicles that are sitting in bonded warehouses are costing the dealers money and are not generating any revenue for the Government," LaCroix said.
Stewart-Lechler contends that increased revenue can be realised through lowering duties.
"When we lobbied to decrease duties, the Government was very sceptical. But, we exceeded their guarantee two times. We are worried now because our pipeline is drying up. Our deposits are down," said the Stewart's Auto director.
We are concerned we are not going to get the growth we need," she said.
The finance ministry did not respond to requests for comment.