NEWSFOCUS - INDUSTRY INSIDERS:Ahead of the great cost-cutting exercise that is Tuesday's Budget, PADDY COMYNasks industry insiders what they hope the Budget will achieve and what changes they would make, in Minister for Finance Brian Lenihan's position
WITH A supplementary Budget just around the corner, it would appear likely that motorists and the motor industry won’t avoid the pain. Yet the industry is reeling from the collapse of new car sales and many dealerships are struggling to stay afloat, selling their stock at a loss simply to get some working capital.
We asked several motor industry leaders what they hoped for from next Tuesday's Budget.
KIA IRELAND MANAGING DIRECTOR, JAMES BROOKS
If I were Minister for Transport, I would give people enough information to remove uncertainty so that businesses can plan ahead.
The greatest thing holding businesses back is uncertainty. People need to know if they can plan ahead for the next 18 months.
If I were greedy, I would ask for VAT to be brought back to 21 per cent. There needs to be a scrappage scheme for cars of nine years old and older, as this would include cars from the big peak of 2000.
I would like them to leave the VRT alone as it is and if they do intend to change, then we need due warning. People don’t want to have to adjust the value of cars because the bands have changed.
We need to give people in employment a signpost as to what they will be earning in the next 18 months so that they can cut their cloth accordingly. People will then decide whether they are in the market to buy or not.
I see the scrappage scheme working for older drivers. Younger people are more exposed and they aren’t sure what will happen with their jobs, while the older crowd might be retired and they know what their pension can be. The scrappage would need to be €1,500 or more to make it useful.
CHAIRMAN OF THE GLENCULLEN GROUP, BILL CULLEN
This is a question that I can’t really answer because the truth of the matter is that they wrecked the whole motor business when they altered the VRT last July.
When you reduce the price of any new car, this automatically reduce its used value and this is something that not everyone realises. As the result is of this – as well as other factors – used car prices have collapsed.
If I had my wish, I would go back two years and leave things the way there were – not long ago, we were doing 180,000 new cars in a year, with most of these sales occurring in the first quarter of the year. This year, though, we will be lucky to do 60,000, and it is difficult to run a business on those sorts of numbers.
A scrappage scheme will have limited success if it is introduced because, let’s face it, someone driving a 10-year-old car is more than likely the second or third owner, and they’re not a likely candidate to be buying a new car.
The VAT clawback issue is one that affects all motor dealers badly and is almost unique to the motor industry. Car dealers are currently selling cars at a loss, yet will still have to pay VAT on the higher amount, regardless of what they sell the car for and this should be looked at.
The motor industry has been a great supporter of the Government in terms of taxes, and now it is time for the Government to support the industry.
RETAIL DIRECTOR OF TOPAZ, FRANK GLEESON
Well, as most people know, the motor fuels sector is already a highly taxed area. About 70 cent of the price of a litre of fuel goes to the exchequer.
In the last budget – only six months ago – 8 cent was put on the price of unleaded. While consumers sometimes feel retailers are driving price increases, a recent National Consumer Agency report found a large proportion of the pump price of fuel in this country comprises taxes and duties, that the market here was competitive by international standards, that there is relatively modest profit to be made in the downstream supply of refined oil products and that, at a national level, price variations are passed onto consumers in a timely manner. So our hope would be that the motorist doesn’t take the hit again this time round. We would also hope that any changes made would not force business across the border, with a consequent loss of business to retailers here.
BMW IRELAND SALES DIRECTOR, MICHAEL NUGENT
Closest to our heart is the issue of enforcement. When people are driving about on UK and Northern Ireland plates and not paying the tax, the rest of us have to pay and it appears that the laws are not being enforced.
It seems people can drive with impunity which is very frustrating – it’s not a level playing field. We are prepared to play against the toughest competitors but lets do it on a level playing pitch.
We need to see more positive action being taken, more road blocks in place so that people know they are taking more of a risk and the Revenue’s increased powers must be put to use. If there could be closer liaison between an Garda Síochána and Revenue in this respect, we would all win. If it became known that they would clamp down, this might help cash flow to the Government.
Scrappage would help. At the moment it is about mindset and this might stimulate something. This is an unusual year. There are a lot of people thinking about buying a car and this might help them make the move. Scrappage is working in a lot of countries; we have done it before so let’s do it again.
VOLVO IRELAND MANAGING DIRECTOR, DAVID BADDELEY
It is the rapid deterioration in the car market and the resulting stock costs that are causing a major challenge for many retailers.
To help alleviate this and generate some much-needed tax revenue for Government, I would announce a 50 per cent reduction in VRT on all new cars purchased between April 7th and June 30th.
This would be a one-off measure, designed to help customers help the country by incentivising them to buy now, generating much-needed tax revenue. From the Government’s perspective, 50 per cent of something is better than 100 per cent of nothing!
I would introduce multiple (a minimum of two) registration peaks per year. The current focus on January counts against the customer in terms of the part exchange deal they can negotiate and the level of customer service in both sales and after-sales at peak times and creates a cost burden for the industry as a whole that is untenable.
As a first stage, I would introduce a second registration period in 2009 to boost tax revenues, say in September, by adopting a UK-style, two-peak system.
To coincide with this, I would introduce a scrappage scheme from the same date (September 1st). This package of measures would give short-term incentives, firstly through a VRT rebate which would help generate tax and address stock issues, followed by a more structural change in the registration process and a scrappage scheme that generally supports purchasers of smaller/lower-value cars.
Finally, the motor industry is a major employer and tax generator, therefore we need a vibrant industry. By adopting the common European approach of charging VAT on the profit on selling a used car (and not allowing a VAT refund on cars when they come into stock) but linking this to providing an amnesty on the VAT currently tied up in used cars on Dealer forecourts, the impact will be to pass on that saving in lower prices on used cars to the consumer and a reduction of stock pressures on dealers.
This has, in effect, zero cost to the Government and huge benefit to the industry and customers. It has to be done.