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Manufacturers call for tax changes to boost new vehicle sales

Sector proposes various tax-based support measures to stimulate sales post Covid-19 – including pausing the carbon tax.
Allowing the Vat on private lease finance agreements to be paid monthly instead of upfront would attract more private purchasing through leasing, says Naamsa. Image: Luke Sharrett/Bloomberg

The CO2 tax on new vehicles is a good tax to temporarily discontinue to stimulate demand for new vehicle sales following the severe impact of the Covid-19 pandemic, an automotive conference heard on Wednesday.

National Association of Automobile Manufacturers of South Africa (Naamsa) vice president and MD of Ford South Africa and sub-Saharan Africa Neale Hill said this is because the discontinuance of the CO2 tax will have a limited effect on emissions without any change in fuel quality.

Naamsa commissioned B&M Analysts to conduct a study to investigate and make recommendations on how best South Africa can stimulate demand for new vehicle sales, production and the entire automotive value chain because of the impact of Covid-19, Hill told the HyperMobility virtual conference organised by Messe Frankfurt South Africa and Naamsa.

‘Fiscally neutral’

Hill said that in terms of recommendations, the primary focus was on stimulus interventions that are fiscally neutral and that it only considered tax-based support mechanisms and an amendment to the treatment of value-added tax (Vat) as part of the leasing options.

“Based on our modelling of the government’s net fiscal position, this would improve by R1 billion, with the industry benefitting from an additional 11 756 units of sales.

“An ad valorem tax reduction will have the most significant impact, given price elasticity in the market,” said Hill.

“Based on our modelling, the government’s net fiscal position based on a reduction of the ad valorem rate from 0.0003 to 0.000022 would remain unchanged, with the industry benefitting from an additional 16 635 units of sales,” he said.

Hill added that the removal of the upfront payment or capitalisation of Vat for private lease finance agreements would allow for the monthly payment of Vat as per rental agreements, which would attract more private purchasing through leasing.

Sector forecast

He said an optimistic economic forecast is for a V-shaped recovery globally and for South Africa and new vehicle sales to rebound sharply from the extreme lows recorded in 2020 – although expectations are for the new vehicle market to only achieve the pre-Covid-19 market level “by 2022 and onwards”.

Absa chief economist Jeff Gable told the conference the South African economy is only expected to get back to the same level it was in 2019 in late 2024 or 2025.

“The impact of Covid-19 is substantial and is going to be long lasting,” he said.

Gable stressed that investment is necessary for the economy to grow going forward but any recovery in the economy will be private sector-led because of the poor state of government finances.

He said that in the same way businesses only invest when they feel confident, households will tend only to spend discretionary income if they feel more confident.

Consumer confidence is very weak and high income consumers are no exception, with large discretionary expenditure associated with the vehicle industry, he said.

“For the first significant time since the mid-1990s, wealthier households in South Africa say they are worried about their financial position.

“You can have significant incentive programmes, interest rates that are at 50-year lows, but at the end of the day, a big-ticket purchase – something like a vehicle – is also a high-confidence purchase as well,” he said.

Read: Further SA rate cuts now hinge on forecast for economy

Gable questioned how much of the recovery in new vehicle sales recently is a “catch-up” from the two to three months when there were very few sales and how much of this recovery is a direct response to other factors, such as lower interest rates.

Hill said new vehicles sales declined by 33.4% in the first nine months of 2020 compared to the same period in 2019, while vehicle exports declined a massive 37.5% over the same period.

New vehicle sales reflect the state of the economy

“Due to the close correlation between new vehicle sales and the economic growth rate in the country, the pre-Covid-19 projections were for new vehicles sales in South Africa to decline by about 3% in 2020 due to the pre-existing recessionary economic climate in the country.

“As a result of the Covid-19 impact, projections are now for a 30% decline in overall new vehicle market sales – 10 times more than the initial projection – while vehicle exports and subsequent vehicle production is also anticipated to decline by about 30%,” he said.

Read: How quickly our economic outlook changed

Hill said 2020 is already the worst new vehicle market in South Africa in 10 years and a recovery will depend on how quickly the economy can break out of its low growth trap and how soon society will recover from the Covid-19 lockdown.

“Under normal circumstances, positive factors such as the 300 basis points interest rate cuts, dealer incentives and low inflation would be expected to support the new vehicle sales market.

“An important avenue for the government to support this key corona-hit sector of the economy is to reduce taxes on new vehicle purchases and to stimulate new vehicle sales,” he said.

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This is why Socialist countries fail! They tax the hell out of the people who make the money, THEN steal a bunch, THEN give what drips and drabs are left to the ever growing poor population

Why do vehicle manufacturers always blame every body else for their overpriced product which is actually overpriced because of their greed and inability to produce a price worthy product. The old slogan “you got to buy now before the next increase” just doesn’t cut it anymore. Vehicle sales are rock bottom which would under normal economic principals mean lowering prices to attract customers is apparently an indication to manufactures to increase prices.

Actually, a lot of the excessive pricing in SA can be blamed on the exorbitant taxes that the regime adds to locally manufactured vehicles. Cars overseas are significantly cheaper. It’s a market-distorting practice to protect local manufacturers.

Our auto “industry” is a sick joke. It survives on subsidies of, I guess R20bn per annum, the vehicles are then taxed and expensive, service and quality is, at best, average. All this to keep a handful of marginally productive and, for the majority, militant, workers in beer money. Main reason I guess is to maintain votes in the ANC strongholds; Durban, Port Elizabeth and Gauteng.

Thank you Mr taxpaying, productive South African said no ANC politician, ever.

My 2014 Grand i10 was R119k after some wheeling and dealing. The latest model is R231k – WTF?! Still the same engine, just the body and interior changed a bit and some fancy electronics added, not too much to write home about. And how does this justify the massive price increase? My vehicle recently went over 75k km but it is worth less than R100k today – this is a bad ROI, from an investment perspective. Bottomline – buy a good vehicle secondhand, take care of it, replace the engine when eventually required (even if the cost is more than the vehicle’s value), and place the “itch for a new car” money in your retirement funds. Thank me later when you retire.

A vehicle is never an investment. It is a costly but essential means of transport in SA where there is no public transport to speak of. At least a third of the increase in car prices is because of the deterioration in the exchange rate.

Not essential anymore. Uber much cheaper. So in a family only 1 car really required.

Oh and with all the EV targets in Europe when are we going to start production of those here?

Fancy showrooms, grossly over priced vehicles, idiot lazy whining sales people and they themselves whine about car sales.

Buying a vehicle is one of the hardest things to do. The sales people are not interested, when you do after 10 minutes manage to catch their eye, they do not know the product, try to sell you something you don’t want then rip you off with on the road charges. Registration and number plates at 500% mark up.

Quire frankly the motor industries worst advert is the sales person….

In my opinion it is best to buy second hand preferably by private sale, not through the dealership, if possible. Services are also a rip-off. I have had an experience where the dealership wanted to change brake pads on the rear drum brakes where it was not necessary and at greatly inflated prices.

Isn’t that the truth. I have a full service history on my 2009 motor vehicle (purchased new), and it gets serviced regularly when the service is due by a manufacturer-dealership. The service department is in the same building as the new and second hand car sales section, and it’s always an opportunity see check out the latest models when I take my car in for a service. How many times has a sales person at this dealership offered me a trade in on my existing car for a newer second hand or a brand new car I hear you ask? Not once!

These are short-term solutions that ultimately won’t help the underlying problem: cars are too expensive because of our weak currency. Fixing the fundamentals, ie, corruption and mismanagement will address that and improve our exchange rate. Whether that is achievable, however, is another story entirely. Government is simply not doing enough.

Sorting out the utility issues and scrapping BEE will also attract more foreign investment, which will create jobs and thereby more disposable income. They know what they have to do but they just can’t do it.

Car manufacturers NEVER decrease car prices. They just play around with their margins. In good times you get longer warranties and service plans ‘for free’, but a lower list price – never.

The so-called dealer ‘delivery fee’ of around R4500 does more harm to the customer than a minor carbon tax in any case.

End of comments.

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