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SALES DROUGHT, PRE-REGS AND THE €45 MILLION WINDFALL

What benefit is there to a car market to register in excess of 50% of its monthly registrations in the last 10 days of the month? I have been trying to figure this out all year and it doesn’t make any sense to me for the motor industry in Ireland to continue to do this. June 2012 saw 4178 units registered in the last 10 days, a massive 65% of the month’s units! Our year to date report is at this link INSIGHT JULY 2012

With the seasonally adjusted sales rate (SAR) at just 77,000 units for the year the market is suffering from a savage beating at the moment. Retail sales are falling, and with the availability of credit tightening the prospect of more sales through finance doesn’t look good. Nor does the prospect of another scrappage scheme look likely even though some manufacturers are calling for them across Europe Crisis in Europe.

In fact things could get much worse before there is any sign of them getting better. The government have called for a review of VRT in Ireland and whilst this shouldn’t bode badly for the industry it needs to be very carefully managed.

When it was last reviewed in 2008 the timing couldn’t have been worse with the new scheme coming in on the 1st July that year. Effectively it killed sales in the first 6 months and the industry welcomed in the recession way before it should have done. This can’t be allowed to happen again.Click here for the VRT detail

IS THE DEALER’S VOICE BEING HEARD?

The reality is that the government needs to generate more revenue from the industry as their tax receipts are back 72% on 2007 from €1.4 billion to under €400 million last year. It’s highly likely that they will change the rates around the CO2 emission band and the rumour is that this will be in place for the budget. I don’t want to tread on any toes with this as I know that the livelihoods of a lot of people depend on the manufacturers, the industry bodies and the government getting it right this time.

However I do have concerns, concerns about the government not listening as well as it could do to what is happening at the coalface. To do that they need to listen to another voice, not as loud or as well represented as it could be for a myriad of reasons. That body is the dealerships, the people that own the dealerships, that run them and that work in them. They are seeing first-hand what is happening.

WHAT IS THE GOVERNMENT HEARING?

The most immediate issue and the most pressing is the one that I have started the article with, the pre-registrations that are happening at the end of the month. With the exception of cash rich dealerships (a declining species), which can avail of manufacturer incentives and buy pre-registrations at reduced prices, there is absolutely no benefit to these dealers to self-register. The pre-registered cars will be sold, however they will push down the price on used cars, cars in stock that the dealers are having to absorb (this reality is happening now).

4 year comparison

At the very same time the government must be hearing a very different message, a message that is confusing unless you have the full picture. This message is one that says we are getting our revenue at the end of each month as the new cars get registered so everything must be OK. Sure they would like new car sales to increase and therefore earn increased review from the tax. But they are not absorbing any pain, they are not absorbing direct losses for these cars and therefore these losses have no direct consequence to them.

BROKEN RIB

Pain is a funny thing. I broke my rib just 3 weeks ago and I have to say it’s really uncomfortable. For the first week it was awful pain and I couldn’t sleep, the second week a little less and this week a little less again. But the pain is still there and I’m taking pain killers daily. Everybody around me has forgotten I’m in pain of course; the reality is they don’t care and I get that, however it’s hurting me and I’m having to make a lot of changes to how I do things because of it.

It’s the same for the government but they just don’t know it. The dealers out there are really hurting and they are in a lot of pain, but its a pain that the government aren’t feeling which they need to.  34,493 cars have been registered in the last 10 days of six months to June this year so far, 50% of the total cars registered year to date. If I conservatively suggested that 33% of these cars were self-registrations then the government has taken around €45million in revenue this year over and above what they really should have done. THAT WOULD BE A PAINFUL HOLE IN REVENUE TO PLUG.

REAL MARKET

My belief is that the real retail market is sitting at around 60,000 units this year and as such the likely revenue from VRT should be around €240 million and not the €310 million that they will likely get paid. If that revenue was €240 million perhaps they would sit up and take notice, €70 million that’s a big hole in revenue to fill. Its a truer picture of what’s really happening in the market on which to gauge their decisions on the VRT review. AND IT DOESN’T INCLUDE ANY OF THE VAT REVENUE THAT WILL BE GENERATED.

Getting back to the dealerships pain though; 5 dealers have closed their doors within the last 3 weeks and it is rumoured that there are manufacturers who are actively shoring up others. The reality is that there are still too many dealers for the size of the current market and more will go. What can be done to avert this?

There are therefore only two things that can be done, either somehow the market has to see a lift in volumes or more dealers have to close their doors. Anything the government can do to lift sales will be a welcome boost for the dealers as with this option there is a chance for the government to earn more revenue in VRT, VAT, PRSI and Corporation Tax. The second option guarantees a drop in taxation revenue and will result in more dealers closing their doors. The dealers need this message to be heard loud and clear.

My belief is that this argument, that any increase in taxation will hurt the other side of the revenue coin is not being discussed as much as it could be. Whilst the government picks up VRT revenue from decisions made to pre-register cars not required, the true story will not be told. 

My genuine concern is that unless it is discussed in more depth with dealers it will lead to a decision on VRT that, like a broken rib, will be really painful and will take much longer to heal that is avoidable.

If the government increases VRT in whatever way, in a depressed market, it will have major adverse consequences for car dealers, jobs and tax revenues. The industry needs to avoid a repeat of what happened in 2008 by getting this debate on the table now and getting their voice heard loud and clear.

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