INSIDE THE WORLD OF BUSINESS
New car sales stuck in reverse gear
The decline in new cars taxed for the first time last year was 12.3 per cent, according to the latest data from the Central Statistics Office. It says the total number of new cars on our roads in 2012 was 76,256.
The CSO data highlights the continuing troubles of the motor trade, which has been hit hard by the recession.
It’s also bad news for the Government in so far as it highlights yet another drop in the revenues generated from vehicle registration tax on the sale of new cars and the annual motor tax.
The statistics show Volkswagen is the top-selling brand in Ireland, breaking the grip held by Ford and Toyota over the last decade.
The VW Group has been on the offensive in Ireland since it took back direct control of its brands here from the O’Flaherty-owned Motor Distributors Ltd in October 2008.
The Germans may have mistimed their arrival, having missed out on the boom years, but they have been determined to make the VW badge a force to be reckoned with on Irish roads. Similarly, the group has pushed its high-end brand Audi to the top spot in the premium segment.
When sales of these two brands are combined with its other marques – Skoda and Seat – the VW Group controls over 25 per cent of the new car market.
The focus this year will be on how Ford and Toyota react, and whether they are prepared to chase the German behemoth. It’s not going to be easy, particularly as Volkswagen has a new Golf in its range that will further bolster its sales.
Whatever about the battle for the top spot, 2013 is unlikely to herald a return to growth in new car sales.
Most market watchers agree that it will do well to match last year’s figure, even with the extra digit on numberplates that waylays superstitions about the number 13. The new numberplate format means a digit change in July, which the motor trade hopes will draw in some extra buyers in the normally quiet summer months.
However, most agree it is very unlikely we will see a return to annual new car sales of 100,000-plus until there is a dramatic recovery in the economy.
CoCos sale bodes well for disinvestment
The sale yesterday by the State of Bank of Ireland Convertible Contingent Capital Tier 2 Notes (CoCos) worth €1 billion was heavily oversubscribed and bodes well for further disinvestment by the sovereign in that bank and possibly in AIB and Permanent TSB too.
Total remaining investment in those institutions by way of preference shares and CoCos is a further €6.9 billion.
The National Pension Reserve Fund has preference shares in Bank of Ireland with a value of €1.8 billion which, according to their terms, can be redeemed at their €1 issue price up to March 31st, 2014.
After that date the cost to Bank of Ireland of redeeming them jumps by one-quarter.
The State owns 15 per cent of the bank’s ordinary shares, which are currently worth about €600 million.
The Government has preference shares in AIB of €3.5 billion and €1.6 billion in CoCos and owns just about all its ordinary shares.
A number of parties are believed to be currently interested in the purchase of Irish Life, which the Government bought last year for €1.3 billion and which could yet be sold at a small premium.
Minister for Finance Michael Noonan said all the money the State might retrieve from the banking sector over the coming period would be used to pay down debt.
The national debt is projected to rise to about €200 billion this year, and the securing of a number of billions from the banks would be a small but not inconsiderable matter.
But the effect of increasing confidence in the banks, and the State, would also be of considerable value.
Mr Noonan spoke yesterday of his wish that increasing confidence would see a fall in our very high savings rate, and a related increase in activity in the domestic economy.
Such developments would, of course, be positive for employment levels and therefore for the finances of both the State and the banks.
A major issue now may be the views of the rating agencies, which have to date stuck to their rather negative views on the State’s creditworthiness.
Any change there would be of particular value in terms of a full return to the markets and a reduction in the cost of servicing our debt.
Something done, a lot more to do.
Time for debate on oil and gas exploration
The Republic is a long way from converting any oil or gas off its coast into wealth, but with some signs that there may be resources there worth exploiting, now may be the time to start thinking about how to get the best deal for the State and its citizens, who are the ultimate owners.
Critics of current policy say we are giving it away too easily – any profits are taxed at 25 per cent, but the exploration costs are deducted against this.
The Government points out that, given the poor success rate of oil and gas exploration in our territorial waters, and the costs and risks involved, we have to maintain a reasonably attractive regime to bring companies in in the first place. Otherwise whatever is there will remain in the ground.
Norway’s foreign minister, Espen Barth Eide, who was in Dublin this week to mark the beginning of the Republic’s term as EU president, says the Scandinavian country’s approach has always been to “only start taxing when the companies start earning money”. And Norway certainly does tax them. The effective rate for profits on oil and gas extraction is 78 per cent.
He argues that the critical thing to remember with resource companies is that, unlike other multinational investors, they don’t have discretion about where they locate. They have to go where there is oil and gas.
This does give the State a strong hand, particularly as it owns the oil and gas in the first place. Norway’s approach is to facilitate companies’ exploration activities, maintain ownership of the resources and then tax heavily when they begin making money.
None of this has deterred the big players from moving in there, but then the country has provided extremely rich pickings for four decades, with no real signs of that slowing.
Over the same period the picture in the Republic has been less encouraging; there have been just two commercial gas finds.
Nevertheless, with exploration activity and results stepping up considerably, now is a good time to have a debate about what we want out of it. This is not least because a sense that we are getting a good deal from the companies involved could help to quell some of the opposition that exploration projects are meeting here.