Driving into another good year

It is said that the motor industry is the most effective ready reckoner for the state of the economy. With an unprecedented 130,000 plus new cars registered this year, there's confirmation then of just how buoyant this country has been in 1997. All the expectations within the motor industry are that it is set to continue, although there's general recognition that the 130,000 figure will not be matched in 1998.

That's because the highly successful scrappage scheme, introduced first two and a half years ago, is just ending. It meant an extra 45,000 new cars during that period and an extra £100 million to the State's coffers with nearly £45 million coming from this year alone. Now in the post-scrappage era, most industry analysts are looking at around 100,000 new car sales in 1998. No one believes that the small Vehicle Registration Tax reductions will have a significant impact in creating extra demand - £100 off a £10,000 car and £1,000 off a £50,000 model.

The Minister for Finance was pressed by the Society of the Irish Motor Industry (SIMI) to bring in a 20 per cent VRT rate which would have meant around £250 off the £10,000 small car. He didn't do that in his Budget, opting for reductions from 23.2 to 22.5 per cent for cars under 2.5 litres and from 29.25 to 28 per cent for those over. With a 20 per cent rate, the SIMI argued that it would be as self-financing as the scrappage scheme was. Nevertheless, the SIMI pronounced enthusiasm for the Budget because motorists are going to be paying a little less rather than more tax, a rare event.

One factor which impacts enormously on the state of the motor trade is interest rates. They look set to stay as appealingly low in 1998 as they were this year. The finance companies and the major banks regard car finance as a major element of their lending business and the current low rates have done much to stimulate a highly competitive approach. Finance companies also linked with the motor trade have created highly innovative packages around the low rates, aimed at luring potential new car buyers their way.

The retail motor trade extends far beyond the 130,000 plus new cars that have been sold this year. Many more second-hands will have been sold, again in transactions that will have required finance.

Then there's the "alternative" trade, involved in importing used cars from the Japanese and British domestic markets. In 1986 figures from the Revenue Commissioners indicated 58,000 such imports and this year's figure is likely to be much the same. The established trade, as represented by the SIMI, doesn't like it and one of the reasons for seeking a 20 per cent VRT rate was to make these imports much less attractive as value-for-money.

Scrappage made its contribution to a newer or smarter car park in 1998 and in the one-and-a-half years before that. Old bangers that were polluting the environment have been replaced with emission-efficient new models. A similar clean-up is likely to come in 1998 with the introduction of compulsory car testing for older cars. It should have been introduced at the start of the year but a date in the summer looks more realistic.

This State, thus, is not abiding by EU law which stipulated a January 1st, 1998, start-up. What happens if someone is killed or seriously injured by a badly defective vehicle between January and the actual start of testing? Could he/she or the next-of-kin sue the Irish Government for negligently not adhering to EU law? It's an intriguing question which the Department of the Environment has yet to answer.

Car testing, when it does come, will bring a stimulus to the motor trade around the country. It is envisaged that there will be a network of 70 testing centres. The Department of the Environment is about to invite tenders for a national operator. The SIMI and Dekra, Europe's biggest car testing operation, have set up a joint company called Dekra Eireann, seeking the franchise.

The spin-off from testing should mean additional new car sales, though nothing of the number created by scrappage. As well as better maintained cars, it should mean the creation of over 1,000 jobs (300 direct and 800 indirect). Other benefits include an improvement in residual values and not being able to dump here unsafe cars that have failed the MOT test in Britain.

Petrol and diesel fuels are now significantly cheaper in this State than Northern Ireland. The difference in petrol extends up to 10p per litre. Petrol stations in the Border areas of the South which for years had languished, are now doing a flourishing business again. Cheaper petrol here has also added to the incentive for Northern Ireland people to shop in the South: in many instances the saving on fuel pays for the cost of the trip.

If car ownership is a measure of our prosperity, then we still have a bit of catching up to do. In fact, with 29 vehicles per 100 people, we have one of the lowest car ownership rates in Europe. Over the next three or four years with our Celtic Tiger prosperity, this ownership level is likely to rise to 31 vehicles per 100. In Northern Ireland, incidentally, the figure is 36.

The environmental fundamentalists may not like it, but this State is hugely dependent on the car for business and pleasure and just the everyday activities of living. And the Government is hugely dependent on the taxes that it creates, nearly £2,000 million this year.