Car sector finds sales recovery to be a bumpy ride

Marcella Scarlett, Business Reporter

Finance Minister Audley Shaw has claimed that the lowering of import duties on motor vehicles has acted as "stimulus" for the auto sector, but traders on one side of the market, used vehicles, say the uptick in business seen in May has already petered out.

New-car sellers, however, say it has given their business a needed shot in the arm.

On the upside for used-car companies, the announcement drove customers into their showrooms creating an opportunity, if short-lived, to sell off some units that had backed up in inventory.

"There has been a little increase associated to the change in duties - I would say 10 to 12 per cent increase," said Ken Shaw, a former president of the Jamaica Used Car Dealers Association.

"At the outset there was a lot of interest. When the reality set in, it started to peter off," Shaw said.

Initially, when the finance minister announced a series of new duty measures on car imports, including a cut in the Common External Tariff on car imports from 40 per cent to 20 per cent, traders cut prices on cars in stock, knowing that the lower ticket prices would still supply them with sufficient margins to replenish their showrooms and car lots with cheaper imports.

"What most people did was to create a balance and reduce some of the prices and then work with a equilibrium with the new ones coming in so that they really didn't lose," said Shaw, managing director of KACS Group Corporation.

"So they sold them at cost to break even because some of them cost more than the new ones."

But sales in the used-car sector quickly tapered off when buyers recognised they were not benefiting from fresh imports.

Shaw said his sector is contending with the reality that the lower end of the market is saturated. Prospective buyers are visiting the used-car showrooms, but few are actually willing to change their cars, he said, while sales at the top end of the spectrum are seeing more robust sales because duties on those vehicles have fallen, for example, 3,000cc engine cars have fallen from 191 per cent to 91 per cent he said.

The amendments to the CET took effect on May 2. The measures (see insert) were forecast to raise a minor J$180 million for the treasury.

Imports on the rise

Port Authority of Jamaica data on car imports indicates that the market is still reacting positively to the tax-policy amendment. Between January and July, vehicle imports were up 745 units over year-earlier levels, with July showing the most robust climb. In the first seven months of 2010, the port recorded 4,289 vehicles imported through Kingston Wharves Limited. For the 2011 period, imports amounted to 5,034 units, reflecting a 17 per cent increase.

In July, imports doubled to 1,028 units that month, performing well above the half-year average of 668 units per month.

"Car sales have gone up," said Kent LaCroix, chairman of the Automobile Dealers Association of Jamaica, which represents new-car sellers.

"For some dealers, it is more significant than others. But since then we have had to deal with things like the tsunami in Japan, for example, dealers have not been able to get their quantities. Some dealers benefited more as they had inventory in stock and were able to sell from that," said LaCroix, who works with Stewart's Auto Sales.

Vons Japanese Imports, which straddles both the new- and used-car markets, said it has seen an uptick in sales in both business lines.

"Sales of used cars went up a little but new cars went up a bit more. Sales went up at first and then it flattened off," said John Von Strolley.

"The used vehicles out of Japan have got so expensive because of what happened in Japan. The same local Japanese people are looking cars that are two and three years old," said Von Strolley, referring to the Japanese earthquake and tsunami in March that derailed both the auto supply and parts industries.

"When we go online, we have to bid more - for example, a 2007 Corolla is going for US$12,000 because locals are also bidding. So we have to bid more for the cars, and prices are coming close to the new cars. Cars we used to pay say US$9,500 for, we are now paying US$12,000 for them," he said.

The distribution chain out of Japan has also been disrupted, imposing uncertainty on timely supply of new cars.

Some dealers have turned to the United States as a backstop, though Von Strolley said it was not an ideal situation.

"We can get cheaper cars out of USA, but the problem is that they are left hand drive," he said.

Crichton Automotive Limited, a used-car seller, said its alternative market is Singapore. The trader said it saw its sales rise 20 per cent in May but, like others in the market, has since flattened.

marcella.scarlett@gleanerjm.com