With 3,000 jobs lost and 3,000 more at risk, Government action is crucial, writes Michael McAleer, Motoring Editor
THE MOTOR industry is in crisis. Globally, car firms are reporting losses, cutting production and seeking government assistance. The US billion-dollar bailout has been followed by incentives in several EU states. As tax receipts plummet, governments across the world are eager to secure this important revenue generator.
On the Irish market, things are no different. The car business is in crisis: the industry’s lobby group says so, the dealers say so and anyone you encounter on a forecourt says so. Sympathy and support, on the other hand, are in shorter supply.
To judge by the reaction of some members of the public, it would seem they care only for the deal on offer and demand that prices fall. Customer service levels are often cited when giving the cold shoulder to a request for help.
Yet the figures don’t lie. This week’s announcement of a 66.5 per cent drop in sales will spell disaster for the 50,000 people employed in the industry.
Some 3,000 jobs have already been lost and, according to SIMI’s director general Alan Nolan, another 3,000 hang in the balance unless something is done. “These latest jobs disappeared with hardly a comment yet represent something in the region of four to five times the number under threat at Waterford Crystal,” Nolan said.
Even if you don’t care about the industry in general, the hole in the State finances due to the drop in sales should be of concern.
Tax revenue from VAT and Vehicle Registration Tax (VRT) in 2007 was €2 billion. Last year it was down to €1.5 billion. If sales continue at current levels it’s likely to be as low as €500 million.
No doubt Revenue officials have been adjusting their income expectations for this year based on the falling car market, but even the industry did not expect it to be this bad.
After nearly a decade of sales topping 150,000, the plan was to put infrastructure in place for a modern European market. New EU rules introduced between 2002 and 2005 allowed manufacturers to set standards for dealer showrooms and service centres. These rules were applied on a national level. They often involved such intricate details as the design of the buildings, the glass used up front, the tiles on the floor, even the chairs and the coffee cups. Needless to say not all the nation’s dealers were ecstatic about the required investment.
Yet with the Celtic Tiger roaring and car makers eager to show their brand in the best light, it was easy to see why the standards here were set higher than some other EU states. A downturn would mean perhaps 120,000 new car sales. That was manageable.
Instead what we have seen is a crash. Dealers have been left struggling with significant overheads, mortgages on premises and staff costs. In turn new stock isn’t moving as quickly as was hoped, while used prices have fallen to British levels, well below the values given on the original trade-ins. They’re being sold at a loss just to generate cash.
The solution, according to SIMI, is threefold. First the Government needs to re-introduce a scrappage scheme for cars 10 years or older, similar to the one operated from July 1995 to December 1997. From a pool of 213,000 at the time, 65,000 cars were scrapped and replaced with new ones.
Current estimates put the number of cars 10 years or older at 312,000. The scheme would assist the motorist’s transition to cleaner, greener vehicles and allow customers take advantage of preferential tax rates.
Secondly, the industry is seeking changes to the VAT rules for dealers. At present they make a payment based on the initial value of the used car taken in during a sale or purchase. This system worked while used cars were being sold at a profit. However, though used prices are falling, dealers are eager to secure working capital just to survive, even if it means selling at a loss. However, they face a VAT bill based on the purchase price, effectively taxing them on the loss they made.
The other major complaint is over-enforcement of tax rules. That ranges from illegal imports where the VRT is not paid to unregistered roadside traders.
In terms of resuscitating flagging car sales, only the scrappage scheme will have any significant impact and it’s unlikely to reach similar heights as in the mid-1990s. Nevertheless, in a cashflow intensive business any moves, particularly the changes to VAT rules, could determine whether businesses survive or fail.