Tale of two halves for new car dealers in 2012
But sales doubled for used-car sector
BY JULIAN RICHARDSON Assistant business co-ordinator firstname.lastname@example.org
JAMAICAN new car dealers endured mixed fortunes during 2012 — bumper sales over the first half followed by up to 35 per cent declines in the final six months.
The discrepancy was influenced by Government's decision to increase duties on new cars in June 2012, say industry players, who reported that sales were negatively affected by the tax hike.
The fall-off in the second half put a damper on what was trending towards being a fantastic year for new car dealers, said Kent LaCroix, chairman of the umbrella Automotive Dealers Association (ADA).
"Sales were, overall, a little bit above the previous year, however, this was not as good as we expected because we saw significant growth the first six months of the year but then declines, after the increase in the duties, during the second half of the year," LaCroix told the Business Observer.
Strapped for cash, the Government in June increased by 10 percentage points the Common External Tariff (CET) on motor cars and SUVs over 2,000cc — part of a raft of measures to raise $23.4 billion in taxes.
The policy basically reversed the previous Jamaica Labour Party administration's move to decrease duties in May 2011, which auto dealers say resulted in increased revenues for both them and the Government.
"The change in duties in May 2011, affected sales positively. The Government realigned the duties so as not to lose revenue and, in fact, gained significant revenue from the increased sales which resulted. That was the correct concept," said David Rosen, president of ATL Automotive Limited, which holds the dealership for the Audi, Volkswagen, Land Rover, Range Rover, Jaguar, and Honda brands.
The aftermath of the latest round of taxes on automobiles, however, includes higher prices, reduced demand and excess inventory across the sector, said LaCroix.
"Many of the dealers spent a lot of time advertising and reducing prices to be able to move the excess stock that they had," said the ADA chairman.
According to LaCroix, dealers stocked up after enjoying bullish sales following the tax reduction in 2011 throughout the first half of 2012, but were put in a difficult situation with the new duty regime.
"Remember, to stock up you need at least six months lead time, so it would have been about the middle of June that the stock really started arriving and, at that time, the level of sales started to decline; so you could appreciate that we would have difficulty because you don't want to keep excess stock," noted LaCroix.
Toyota Jamaica was left disappointed that its overall sales number was not better, given the demand that was anticipated prior to the June 2012 duty increase.
"The first part of the year was a bit more promising than the second part of the year," said Howard Foster, Toyota Jamaica's sales and marketing manager.
"We did not achieve the projections made prior to June because the duties went up and so prices went up and sales went down," he acknowledged.
Nevertheless, it was not a bad year for Toyota, which reported an overall improvement in annual sales for 2012. The company's mid-size sports utility vehicle, the Rav-4, was its top seller. The Toyota Corolla and Land Cruiser Prado also sold well, said Foster.
Suzuki remained the volume leader in 2012, while BMW and Mercedes Benz held their own at Stewart's Automotive Group.
"Last year was a challenging, but successfull year for our group," said Richard Stewart, chairman of Stewart's Automotive.
Among its accomplishments over the past 12 months, Stewart's Automotive relocated its Suzuki showroom from its Orchard Road headquarters to South Camp Road in Kingston. The four-acre South Camp Road property now houses the auto dealer's Suzuki, Mitsubishi and Mercedes Benz dealerships.
"We have completed this relocation and have consolidated our operations, which has resulted in a lot of good synergies and efficiences," Stewart told the Business Observer.
Stewart, along with other auto dealers, listed the appreciation of the Japanese yen — Suzuki and Mitsubishi are both Japanese-made motor cars — among the challenges of doing business last year.
Against the backround of higher duties and other taxes — In addition to the CET, dealers also have to pay 16.5 per cent GCT and Special Consumption Tax (SCT) which varies according to the type of vehicle — the strengthening of the Japanese currency added to the pricing woes faced by the industry in 2012, said LaCroix.
"For the majority of 2012, it was the strength of the Japanese yen which resulted in higher prices than we would have anticipated," said the ADA chairman.
"As the changes in Japan took place, in terms of the elections and changes in policy, the yen started to weaken; as a result we are getting better prices from Japan, but it's going to take six months before we are going to be able to appreciate those improvements," he noted.
But as the yen weakened, prices of motor cars were being inflated by another foreign exchange challenge — the depreciation of the Jamaican dollar versus its US counterpart. The instability in the foreign exchange market and the continuation of the current duty structure were identified as major concerns for auto dealers going forward into 2013.
"2013 is not looking so great and the reason for that is the continuation of slow sales based on the duty increases, and then there is the exchange rate, which is very unstable these days," said Foster of Toyota Jamaica.
Consumers should expect discounts on new vehicles throughout the early part of 2013 as dealers move to reduce excess inventory.
"A lot of dealers will be having sales," revealed LaCroix.
LaCroix noted that there is continuing dialogue between Government and the new-car dealers over the duty structure. Jamaica Customs revealed earlier this week that total collections for April to December 2012 was 73.84 per cent of the annual target of $125.4 billion.
"That's an overall revenue situation but it's quite significant; we would have been able to generate additional revenue for the Government," said LaCroix.
"Because of the fact that dealers are purchasing less vehicles, the projection of revenue from the sector for the Government is going to decline. Can the Government afford that?" he said.
While used-car dealers share some of the concerns of their new-car counterparts, that segment of the auto industry generally enjoyed strong sales last year.
"That (currency depreciation) is causing the prices to go up rapidly, and if nothing is done as it relates to the depreciation of our dollar, we are going to have some problems down the road because consumers are going to find it more difficult to purchase cars," said Lynvalle Hamilton, president of the Jamaica Used-Car Dealers Association (JUCDA)
Hamilton said the dealers are particularly concerned about the delay in the country's signing of a new International Monetary Fund (IMF) agreement.
"We are looking for the Government to make a decision soon because not only does that affect the depreciation of the dollar but we also can't get the US dollars to purchase the cars from Japan, which is causing them to lose confidence in doing business with us," Hamilton said.
Meanwhile, annual sales of used-cars doubled in 2012, according to Hamilton. The JUCDA president attributed the increase in revenues to the relaxing of the age restrictions on some imported used vehicles. The Cabinet in December 2011 signed off on the move to increase the age limit for imported used cars to five years and six years for light commercial units.
"For the coming year, we are not expecting the same levels of sales but we will be able to survive," said Hamilton, who had said in an earlier interview that last year's duties did not affect the used-car segment that much because the dealers no longer delve too much in the larger vehicle market.