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Auto dealers to seek price control freedom

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Ben Albury

• BMDA chief says ‘very outdated policy’

• To meet with Gov’t: ‘We need to let it go’

• As competition ‘right at the finger tips’

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Bahamas Motor Dealers Association’s (BMDA) president says the industry plans to address “the very outdated policy” of price controls with the Government, adding: “We need to let it go.”

Ben Albury told Tribune Business in a recent interview that price controls on new and used vehicles, as well as auto parts, were unnecessary given the level of domestic and foreign competition in a sector that has to work with “very slim margins”.

Confirming that the issue has been a long-standing concern for auto dealers, he added that price controls were becoming increasingly obsolete “in a capitalist market” where alternatives were “right at the finger tips” of the consumer via Amazon and other online sites through which they can order car parts and search out vehicle purchases.

“I’m hoping that at some point we can meet with the Government and try and discuss that,” Mr Albury told this newspaper. “It’s been a point for a long time. I understand monopolies in food need to be price controlled, but in parts and cars we work on very slim margins with numerous competition.

“People can jump on the plane to Miami; it’s not like we’re the only show in town. Consumers can go down the road and purchase from a competitor. I think price controls on vehicles and car parts are a little outdated. I think we’re in a capitalist market and need to let it go.

“There’s so many options nowadays...Amazon, and things right at the finger tips and, if my prices are not competitive, consumers will not come to me. The market will dictate that.” Mr Albury’s argument is that there is more-than-sufficient competition in the vehicle and auto parts market to prevent price gouging by dealers and suppliers.

Industry sources confirmed that the maximum mark-ups, or margins, that dealers are permitted on new and used cars currently stand at 25 percent and 15 percent, respectively. Auto parts are higher at 75 percent.

“I think the BMDA may have a few other things to discuss [with the Government], but I think price controls will definitely be one of them,” he added. “When it comes to cars, it’s just a very outdated policy.”

Rick Lowe, Nassau Motor Company’s (NMC) director/operations manager, added: “Name the country that has price controls. Cuba? When prices increase, the Government gets more duty. They don’t reduce taxes to get prices lower, yet they control the margins of dealers. It’s like gasoline. When the price goes up the Government makes more than the retailer and wholesaler.”

While Mr Albury called for price controls to be lifted on his sector, he agreed that they need to be maintained on industries such as food and gasoline as a means of protection for lower-income Bahamian consumers. However, he is far from the only private sector representative to argue that such measures should be removed.

Sir Franklyn Wilson, the Arawak Homes and Sunshine Holdings chairman, recently argued that price controls will “do nothing” and prove useless in protecting Bahamians against “staggering” cost increases after US inflation recently surged to a 40-year high.

He cited the Rent Control Act as an example of price regulation that had created unintended consequences. “A major impediment to the construction of rental homes in this country has been rent control,” the Arawak Homes chairman argued recently. “The Government will do well to abolish it.

“Rent control has the effect of discouraging investors to go into rental properties. There was a time in this country when high-profile investors were significant players in rental properties and they’re gone. People like Gerald Cash were significant investors involved in properties and rent control helped kill it.”

The Rent Control Act limits the annual rent charged for a leased “dwelling house” to 20 per of its assessed value. Merchants, too, have frequently hit out at what they view as an antiquated regulatory mechanism, but cost of living increases will likely create growing public pressure for price controls to be extended beyond “breadbasket” foods and other items in their existing remit.

Price controls were initially imposed by the Government to prevent what it viewed as a unscrupulous merchant class from exploiting lower income Bahamians by unreasonably hiking the price of food staples and other products, thus placing them out of reach while undermining living standards.

However, opponents argue they are an out-dated and distortionary mechanism that create more unintended consequences than problems they solve. They can result in product shortages, while retailers and wholesalers have to increase prices and margins on non-price controlled items to compensate for selling these goods as effective “loss leaders”.

Mr Albury, meanwhile, acknowledged that inflation was “eating away” at Bahamian incomes and living standards through price increases on multiple items ranging from construction materials and luxury goods to every-day necessities such as food and gasoline.

“It’s a tough time to do business, and it’s a tough time for the consumer,” he added. “Everything is kind of piling down all at once. Gas is up, food is up, the housing market is up but salaries remain flat.”

With the supply of new automobiles to The Bahamas and wider world having slowed to a trickle due to a combination of microchip shortages, production backlogs and supply chain woes stemming from the COVID-19 pandemic, the BMDA chief said growing pressure was being placed on used car prices due to rising demand for their use as a substitute product.

Used car prices in the US rose 40 percent year-over-year in January 2022, and Mr Albury added: “Even the Japanese used prices have skyrocketed, and what this all comes down to is new car production is severely behind to say the least, and that is driving up demand for used vehicles.

“You couple that with all the shipping increases, and it’s just causing a chain reaction. Japanese vehicles are not up to the extent US used vehicles are. I would say it’s probably 10-15 percent. Some of that is because shipping prices have gone up. Japanese vehicles are generally very expensive but, while delayed, I can get them. US vehicles are extremely far behind.

“I have some vehicles that I ordered last February [2021] and I have not got a production date as yet. It’s causing havoc in the market everywhere because people are not able to acquire new vehicles, so it’s driving up the price of used vehicles. When you add in shipping costs, it’s throwing everything out of whack. Most of the production managers tell us it will last for the rest of this year.”

Mr Albury said a friend in the US auto retail and wholesale market had informed him that he can get higher prices for used vehicles now than what he paid to acquire them two years ago. “In the used car market that’s unheard of,” he added. “You’d expect some depreciation year-over-year, but now they’re saying the same vehicle two years later gets a higher price. It’s a crazy, crazy market right now.”

The auto industry is likely one of the most heavily regulated and taxed sectors in The Bahamas. While electric and hybrid vehicles face a 10 percent Excise Tax; and gasoline autos with an engine size of up to 1.5 litres, a 25 percent tax rate; those with engines of between 1.5 to 2 litres and over 2 litres are taxed at 45 percent and 65 percent, respectively. Commercial vehicles, too, face a 65 percent tax rate.

Comments

tribanon 9 months, 2 weeks ago

Industry sources confirmed that the maximum mark-ups, or margins, that dealers are permitted on new and used cars currently stand at 25 percent and 15 percent, respectively.

And that compares to 7% and 4%, respectively, at Florida auto dealers. LOL

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