The Tribune

By NEIL HARTNELL

Tribune Business Editor

A LEADING auto dealer believes the industry will "eventually" recover to levels comparable to its 2007 peak, despite 2011's new car sales being almost 50 per cent down on that banner period in what was described as a "mixed bag" year.

Rick Lowe, secretary of the Bahamas Motor Dealers Association (BMDA), acknowledged that while the sector had "a long way to go" to return to 2007 sales levels, it could take comfort from how it recovered from previous market shocks, such as the Japanese yen's appreciation against the dollar in the mid-1980s.

Speaking to Tribune Business after BMDA members saw a collective 14.71 per cent increase in new vehicle sales year-over-year in 2011, compared to 2010, Mr Lowe said he also detected that businesses - both inside and outside the auto industry - were now "more positive" than they had been for some years. This was despite 2011 new car sales being down 49.68 per cent on peak 2007 levels.

And, while BMDA members had seen an increase in sports utility vehicle (SUV) and passenger vehicles in 2011, commercial vehicle sales dropped by 8.27 per cent year-over-year, hit by a combination of the economy and 2010-2011 Budget tax increases that placed all models in this category into the 85 per cent Excise Tax bracket.

"In a nutshell, it's certainly full of uncertainty, quite honestly," Mr Lowe said of the Bahamian new car industry's 2012 outlook. "Some of us are up, some of us are down. A couple of the Korean products, Hyundai and Kia, are doing really well. They've seen a good increase, primarily on the SUV side, where they're crazy.

"Although new unit sales are up, it's a mixed bag, and we'll keep plugging away."

Bahamian new car sales, and by extension BMDA members, have been hit by something akin to a 'Triple Whammy' in recent years. First was the recession, and the substitution effect, which drove Bahamian consumers and businesses to eschew new car purchases either in favour of keeping their existing vehicles, or cheaper used car imports.

Commercial banks and other lenders became more reluctant to provide credit, either at all or in the necessary amount, for new car purchases. Finally, there was the 2010-2011 Budget's changes to both the duty structure and the rates, which placed virtually all models into higher tax brackets, and thus made them more expensive.

The trends driving Bahamian consumers towards the lower-priced models are shown by the various market shares held by different vehicle types. Passenger vehicle sales rose by 28.23 per cent year-over-year in 2011, while SUV sales rose 7.14 per cent, as new commercial vehicle sales dropped.

As a result, SUVs enjoyed a 44.17 per cent share of all new car sales in 2011, BMDA data shows. Passenger vehicles took a 38.97 per cent share, while commercial vehicles claimed a 16.87 per cent share.

Yet, year-over-year, passenger vehicles are the only category enjoying a market share increase. Their share of new car sales, according to Mr Lowe, rose by more than five percentage points year-over-year, climbing from 33.76 per cent in 2010.

SUVs, meanwhile, saw their market share drop slightly year-over-year, from 45.8 per cent to 44.17 per cent, but the biggest drop was for commercial vehicles. Their share of new car sales fell from 20.42 per cent in 2010 to 16.87 per cent, last year. The latter figure was also well below the 24 per cent and 21.7 per cent market shares enjoyed by commercial vehicles in 2007 and 2008, respectively.

"We're hoping the commercial side will pick up, but that's dependent on the construction industry and other industries," Mr Lowe said. "Hopefully, some people will see growth in the next couple of years. People are making difficult choices. If they can't get the loan, buy smaller. We've even seen, in some instances, companies buy smaller cars for use, rather than buy the luxury models."

Questioning whether the Japanese used car import market was still growing or had stabilised, Mr Lowe said of the Bahamian new auto market: "We've still got a long way to go to get back to where we were. I think we will. Eventually, economies do come back."

Giving a little insight into what the industry might have to endure, Mr Lowe, a director/operations at Nassau Motor Company (NMC), the Honda and Chevrolet dealer, compared the recovery's duration to what happened when the Japanese yen's strength surged on the foreign exchange markets in the mid-1980s.

"It took the industry seven good years to rebound," Mr Lowe recalled. "The price of cars literally doubled from one year to the next. We thought: 'My God, it's the end of the world', but slowly people realise that's the price. That's the way it works: Eventually we adjust.

"I don't think we expect any quick turnaround. I don't think anyone in the dealer body does. There continues to be bright spots among the member firms, but overall it's still quite mixed."

Still, Mr Lowe told Tribune Business that pessimism among the BMDA and business community appeared to have reduced, and some optimism was beginning to break through.

"I find some people more positive than they have been for quite some time," he added. "They're not excessively exuberant, but the negativity has reduced.

"In speaking with everybody in the BMDA, we'd all like to be doing better, but we're here for the long haul. We're not in business to be flashes in the pan; we're here to take the good with the bad. Our members have generally stepped up and dealt with the problems, and tried to be as fair as we could moving forward. It's a tough market."