By NEIL HARTNELL
Tribune Business Editor
New car dealers generally need “at least a 30-40 per cent” increase in sales to return to healthy profit levels, the Bahamas Motor Dealers Association’s (BMDA) president yesterday saying 2014 to-date had produced some initial recovery signs.
Fred Albury told Tribune Business that the economy appeared “to be picking up a little bit”, with 2014 first quarter sales for his Toyota dealership working “up a bit of steam” as customers switched to hybrid models.
Still, reiterating that new car sales industry-wide were down 50 per cent from the 4,200-4,400 peak struck in 2007, the BMDA president said the industry needed a 30-40 per cent increase “from where we’re at right now”.
Suggesting that 3,300 total annual sales would help to get Bahamian dealerships back on an even keel, Mr Albury told Tribune Business: “We need at least a 30-40 per cent pick in new car business to get dealerships back to healthy profit levels.
“I’d like to think it might happen down the road. There’s been some gradual improvement. I’m not expecting an overnight explosion, but as long as things are going in the right direction, we’ll all benefit from that.”
While the Kia and Hyundai dealerships have continued to enjoy strong sales, benefiting from the dual price advantages of a weak Korean currency and lower Excise Tax rates for their smaller vehicles, other Bahamian new car dealerships have struggled through the post-recession environment.
“The others are catching hell,” Mr Albury confirmed. “They’re having to reduce margins to keep cars going out the door.”
But, indicating that some positive recovery signs were starting to emerge, he added: “All that said, things do seem to be picking up a little bit in the economy.
“In the first quarter, sales have been picking up a bit of steam on the Toyota side of things, and they’re running well ahead of last year. This has to do with the supply of hybrid vehicles. People are realising savings and efficiencies from using hybrid vehicles.”
Suggesting that “some pent up consumer demand” was starting to emerge, Mr Albury said the upcoming Car Show at month’s end would be “a kind of barometer” of the new car industry’s health.
He added that with Value-Added Tax (VAT) pending on the horizon, there would “be a lot of interest to buy now to beat the VAT”.
Mr Albury was speaking to Tribune Business after the BMDA yesterday met with Ministry of Finance officials for the third time to discuss VAT and the Government’s fiscal reform plans, and how they would impact the sector.
“We expressed our concern for the industry; that at the moment a lot of us are treading water to keep our doors open, and while we’re big businesses we have very small margins, with price control a big issue there,” Mr Albury told Tribune Business.
The BMDA chief said VAT’s introduction, even with a corresponding drop in import tariffs, would cause the existing 25 per cent gross mark-up on new vehicle landed costs to drop by 9-10 percentage points. And prices for consumers would rise anywhere from 5-10 per cent.
Mr Albury, though, pointed out that these estimates were based on the 15 per cent VAT rate that the Government has now pledged will be lower.
Explaining that the auto sector was concerned about its total tax burden, the BMDA president said: “We expressed our concerns that the Business Licence fee has increased from 0.5 per cent in 2010 to 1.25 per cent.
“My real property tax, in particular, was revalued and increased considerably. We’ve had to make decisions like dropping catastrophe insurance on some of our buildings to offset some of the increases in costs elsewhere.”
Mr Albury added that with new car sales having “shrunk considerably” during the last five years, the Government’s Excise Tax revenues from the sector had taken a major hit, especially with Bahamian consumers switching to cheaper used vehicle purchases.
Such trends, Mr Albury suggested, had also encouraged increased vehicle thefts and Customs-related corruption over the importation of new autos.
“We’re trying to get across to them that we feel we’re not getting much protection for the amount of revenue we contribute to the economy,” Mr Albury told Tribune Business.
He said there was little to stop persons importing used cars, then selling them from the roadside, or via social media and the Internet. This generated no revenue for government and was “going to increase once VAT comes in”.
Mr Albury said the dealers were “disappointed” that Michael Halkitis, minister of state for finance, did not attend the meeting, arguing that it was “essential” for him to have been there. The Government side was headed by John Rolle, the Ministry of Finance’s financial secretary, and other officials.
Among the VAT items the auto industry is seeking clarification on, in terms of tax treatment, are inter-company transactions; warranty items; and corporate demonstration vehicles.
Parts, which manufacturers require Bahamian dealerships to carry, remained a major issue, Mr Albury said. With many products sitting on the shelves for months before they are needed, these will not be caught by the proposed VAT transitional provisions, leaving companies exposed to paying the new tax and old, higher import duty rates.
The BMDA president said that in contrast to the US, where dealers could obtain parts from regional warehouses and thus maintain lower stock levels, their Bahamian counterparts had to carry much higher inventory levels.
As a result, the Bahamian dealers incur a “higher obsolescence rate by having to dump parts after several years”.
Warranties, Mr Albury added, were a loss-making item for dealers in pure financial terms, meaning that any VAT charged on the parts and labour involved would merely exacerbate this.
Pointing to his own Auto Mall business’s Abaco sub-dealership, he questioned how VAT would be applied to inventory dispatched there from Nassau.
“Do you pay VAT two times’, or when you sell it?” he asked.
And, when it came to ‘trade ins’, where customers part-exchanged a vehicle valued at, for example, $20,000 for a new one priced at $50,000, Mr Albury queried whether VAT was paid on the “complete sale” or the $30,000 net cash portion.
Another unknown, he added, occurred when the ‘trade in’ was sold. He queried whether the ‘balance’ was paid, or if VAT was charged on the complete sale and the ‘trade in’ transaction.
Ministry of Finance officials gave no direct answers to these issues at yesterday’s meeting, but said they would look into them.
“They assured us they want to make VAT as simple as possible, and not get as detailed as the UK and other jurisdictions have in the past,” Mr Albury said. “Hopefully, it will be a very simple process.”