The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Auto dealers received a “badly needed shot in the arm” from 2019’s 31.18 percent sales increase, it was revealed yesterday, marking the industry’s best performance since VAT’s arrival.

Fred Albury, the Bahamas Motor Dealers Association’s (BMDA) president, told Tribune Business the sector will gain more “breathing space” if 2020 holds at last year’s total following a 430 year-over-year increase in new auto sales for that 12-month period.

Acknowledging that 2019’s surge will be difficult to match, especially given that post-Dorian vehicle replacement is likely to “taper off”, Mr Albury said he was working to the assumption that 2020 sales will be flat to slightly up following the industry’s best showing in the five years since 2014.

Besides the sector’s reduced excise tax rates, government fleet deals and the storm’s impact, the BMDA chief also attributed the improvement to “stronger consumer confidence” and a Bahamian economy that seemed to be “holding its own” despite the destruction inflicted upon Grand Bahama and Abaco.

Mr Albury spoke out after BMDA figures showed total industry-wide sales were ahead of 2018 sales by double digit percentages in three of 20-19’s four quarters. He added that if the new car industry was performing well it often suggested that the overall economy was doing likewise, as its products are typically seen as a high-end luxury good susceptible to changes in consumer demand.

New auto sales dropped by 1.25 percent between March 1 to June 30 last year, but that proved a temporary fall following a 26 percent first quarter increase. They soared to a 68 percent year-over-year increase during the 2019 third quarter, and rose by 39.5 percent during the year’s final period.

Total sales for those 12 months stood at 1,809, a 430 unit increase from the prior year’s 1,379, with one industry source saying of the growth: “That’s nothing to sneeze at. I think the drop in duty [excise tax] has really helped everybody. I think that’s been the main driver.

“Generally speaking, all dealers are up slightly. Most people are up. Nobody is really down per se. It’s been significant, all things considered, when you look at the overall picture. It [the Excise Tax cut for certain models] takes a while to flow through, but it’s finally catching up.”

Mr Albury said no auto dealer or BMDA member wished to be a beneficiary of Hurricane Dorian, but added that the need for Abaco and Grand Bahama businesses/residents to replace written-off or damaged vehicles had undoubtedly aided 2019 fourth quarter sales.

“I think a lot of what happened, and I hate to put it this way, is as a result of the hurricane there were clients in the last quarter of the year replacing vehicles, especially trucks, for the Abacos,” he explained. “A lot of businesses took advantage of the VAT-free and duty-free situation to replace their trucks.”

The BMDA chief, though, agreed that the major force driving increased new auto sales over the course of 2019 had been the reduced Excise Tax rates implemented by the Minnis administration the year before.

“The change in the duty structure has had a very positive impact on the new car business,” Mr Albury confirmed, “among vehicles that fall into the categories where their engine size is 1.5 litres or less and two litres or less.

“It took dealers a bit of time to source the right product from the factories, negotiating and changing inventories around. Now everyone has something to bring to the table. The increase has resulted from that and, in my opinion, it should have some sort of positive effect on government revenues.

“I know for us, with the Toyota brand, we have an SUV at 1.5 litres and that’s where a lot of the sales are directed. It’s a seven-seater SUV, and that’s in heavy demand. The other dealers, Ford and some of the others, are moving in that direction at 1.5 litres or less. Consumers are going to have a lot more choice.”

The Government slashed the excise tax rate for new autos with an engine size of 1.5 litres or less by 40 percentage points in the 2018-2019 budget, dropping the levy from 65 percent to 25 percent. Besides aiding the sector and individual dealers, it was intended to encourage consumers to switch to smaller, more fuel efficient and environmentally friendly autos.

Then, following industry representations on behalf of dealers who had no inventory in that category, the Minnis administration enacted further reforms to “level the playing field” between dealers by cutting the Excise Tax rate for vehicles with engine sizes between 1.5 and two litres to 45 percent.

And it has also enabled Bahamian auto dealers to defer Excise Tax and VAT normally payable at the border on imported vehicles until such time as they are sold through the use of so-called “bonded” facilities in a bid to improve cash flow.

The auto industry had for years argued that the Government had made itself, and the dealerships, a victim of the “law of diminishing returns” whereby sales and tax revenues were both reduced because the high Excise/duty rates had pushed vehicle prices beyond the reach of most Bahamian consumers.

The Minnis administration ultimately enacted a series of industry-friendly policies, and Mr Albury yesterday voiced optimism that both sides will reap the rewards. “I think the Government was good enough to look at what was happening,” he added. “We made the case, they studied it and, at the end of the day, it will be positive for all - them and us, and consumers.”

He told Tribune Business of the 2019 sales figures: “It was badly needed. It was a shot in the arm for the new car, auto industry and, where the numbers are at, if they can stay there it will give everyone some breathing space.

“The numbers this year should be similar to what we saw in 2019. I think it will be the same as last year. The hurricane demand, especially for us and our Freeport and Abaco operations, that is going to taper. That is my gut feeling, and the numbers I am going to be working with. The first two quarters of 2020 will give a good indication of where we’re at.

“All in all it’s positive and I think it’s a combination of different things that have brought us to these kinds of numbers. Consumer confidence seems to be strong, and the economy has been holding its own considering the hurricane situation. I think the big change is the tax structure; that has probably been the most positive side of the scenario, and more dealers having more product in those categories has helped to boost up new car sales.”

Mr Albury said the only “downside” of the reduced tax rates had been the consumer shift from higher margin, higher-priced models to those that are less expensive. “We don’t make as much margin on the lower end cars,” he added. “It’s more volume compared to the higher end, higher priced product but consumers have downsized.”

Nevertheless, arguing that the auto industry is a key benchmark of the Bahamian economy’s health, the BMDA chief said his Auto Mall group contributes between $100,000-$150,000 in VAT receipts monthly and employs 100 persons. “If the new car industry is doing reasonably OK, it tends to suggest the economy is doing reasonably OK,” Mr Albury said.