Thursday 21 February 2019

Why the slump in new-car sales is a concern for all - not just the motor industry

Lower levels of buying means Exchequer is missing out on more than €100m in tax

New cars
New cars
Brian Cooke

Brian Cooke

Last year, while showing strong activity in the motor industry, was a difficult trading environment for those relying on new-car sales.

This year, based on pre-sales and the first few days' registrations, will again be a real challenge as things stand.

New-car sales are down further on 2018 when, based on most economic indicators, they should be on an upward curve.

This is not just a concern for the motor industry but also for the Exchequer.

Do not forget, for example, that an 11,000 reduction in the number of new-car sales costs the Exchequer as much as €100m in motor-related tax revenues.

Lower levels of new-car buying also has an impact on our environment.

That is because new cars, with the latest emissions technology, are safer and less environmentally damaging than old ones.

But if fewer new vehicles are being bought it stands to reason that the rate of improvement will be slowed.

This year will again be dominated by the whole Brexit controversy, with the unclear fallout only heightening uncertainty for both businesses and consumers.

Uncertainty, as we know, is the enemy of consumer confidence.

In this context many potential car buyers are deferring decisions until the outcome and longer-term consequences are clear.

While we continue to hope, strategy cannot be based on hope.

The euro-sterling exchange rate will take its lead from Brexit developments with implications for both the new and used-car markets.

We must await developments but regardless of what has happened thus far, there is a period of turbulence facing us all on that front. It is not good for business confidence.

In addition to all that, there is also the challenge of rolling out the current transitional phase of the new emissions testing regime, known as WLTP.

From January 1 all consumer information carries the new higher emissions and fuel consumption values based on the new stricter emissions test.

While VRT and road tax calculations are based on CO2 emissions, these taxes will not move to the new higher values until 2020. That is because without adjustments to the current VRT and road tax systems, these taxes on consumers would be increased significantly.

In other words new-car prices would increase substantially and there would be rises for some on road tax.

Instead for 2019 we are operating in a transitional phase.

VRT and road tax are based on values (called NEDC-2). These are calculated using the official EU developed software, intended to provide an approximation of the previous old emissions test (NEDC).

This should avoid those significant tax increases.

Yes, it is all complicated for the industry and for consumers. But it is intended to ensure that car buyers are not facing significant tax increases as a result of the more accurate emissions testing regime in 2019.

However, they will have that better environmental information to help them in their decision making.

The full rollout of the WLTP emissions test from January 2020 will mean higher CO2 readings on new cars when compared to the previous test.

That will require a change to our VRT and road tax systems if consumers are not to be burdened by big tax increases on their new vehicles.

Also thrown into the mix for 2019 is the Budget decision to introduce a new 1pc VRT surcharge on new diesel cars.

Even though this was dressed-up as an environmental measure, it was ill-considered.

The focus was on giving an environmental message rather than on the potential to deliver any significant environmental outcome.

Looking further forward, the pace of change in the motor industry is going to increase substantially over the next five to 10 years.

And the environment will be at the heart of it all.

Environmental issues, particularly air quality and climate change, will be key determinants for the types of car that will be driven, where and when they can be driven, car ownership models and levels, and motor-related taxation.

The motor industry needs to be a key stakeholder in this debate.

I believe we will have an important role in providing technological solutions to environmental challenges.

Any slowdown in new car sales, such as we are seeing currently, is actually delaying the introduction of newer, less environmentally damaging vehicle technologies into the national fleet. This will hamper the country's ability to meet, or even get closer to, our international environmental commitments.

The higher the rate of replacement of older, dirtier cars with new cleaner vehicles, the greater the improvement there will be in transport emissions overall.

A slowdown in the renewal of our national vehicle fleet can be brought on due to external factors such as Brexit or global economic conditions.

These are issues outside the government's control.

However, there are internal issues that we do control.

The most obvious of these is investment levels in public transport and fiscal measures, particularly VRT and road tax.

In this regard, tax systems that support a sustainable transition to a cleaner fleet which don't discriminate against new cars will be important.

This will include, in the short term, taxation around petrol and diesel cars.

Those cars will continue to play a key role for many motorists for whom an electric vehicle is not yet a viable proposition.

During the transition to a world of Zero-Emitting Vehicles (ZEVs), we need to ensure that current diesel, petrol and hybrid vehicles are not devalued through negative or punitive measures by government.

Such a development would significantly increase the cost for consumers to change from their current new diesel/petrol vehicle to a new electric vehicle.

This would lead to a deceleration rather than an increase in the speed of transition to a zero-emissions fleet.

As such it would arise directly from a government policy purporting to produce the opposite effect.

The electric vehicle project has really only just begun.

While numbers have been small to date, they started to pick-up in the second half of 2018, where their proportion of the new-car market doubled.

Hopefully there will be further growth in 2019.

For consumers, in a largely rural country like Ireland, to have faith in these alternative technologies there must be an improvement in the driving range of electric vehicles.

As well as that we need a robust infrastructure that supports this growth.

We have already seen from the new models making their way onto the market that manufacturers are dealing with the range issue.

However, we as a country need as a matter of urgency to begin the process of rapidly increasing the number of quick charging points.

It is hard to see how this can be achieved without significant state capital spending and by commercialising the national charging system to encourage private investment.

The importance of this cannot be understated; the lack of an up-to-date widespread charging infrastructure is perhaps the greatest threat to the EV project in Ireland.

In addition, while the government through taxation measures, the SEAI through their generous grant scheme and ESB through their charging network, have shown real commitment to EVs, it is also important that more local authorities come on board.

Incentives such as free dedicated parking spaces and use of bus lanes for EVs are working in other jurisdictions.

Now is the time to consider these in Ireland.

This year is clearly going to be challenging for the industry, while the 2020s will create an environment where motorists and the industry embrace real change in the vehicles they drive and sell.

These may be challenging times but they are also hugely exciting for the industry as we look into a future of technological revolution.

The motor industry will continue to be at the forefront, driving technological and environmental advancement over the next decade, designing, building and supplying safer and greener vehicles.

Here's to a cleaner, greener future.

* Brian Cooke is Director General Designate of the Society of the Irish Motor Industry (SIMI)

Irish Independent

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