Steering Mad over
used car prices
When the government of Trinidad and Tobago relaxed its tax regime on the importation of fully assembled cars in 1994, it sowed the seeds of one of the most lucrative and fastest growing industries in the country. The foreign used car industry.
Vijay Ramai of South Trinidad, mortgaged family property in 1996 to invest in the used car business. For two years his company, Auto Raja's realised considerable profits from their imports and sales from Japan. Business grew to the point where Auto Raja's was importing in excess of 150 cars annually. Some distributors were making in excess of US$5,000 profit per unit.
Finding a ready market for the cars was not hard either. In fact,
the industry improved the prospect of many middle income earners
in Trinidad and Tobago being able to own and maintain a quality
vehicle. Persons earning between US$400 - $500 monthly could easily
make the $750 down payment and $200 monthly installment for a
Nissan Sentra or Mitsubishi Mirage (including taxes.)
But, just when all the lights read green, Finance Minister Brian
Kuei Tung put a significant spoke in the wheels of dealers and
buyers alike when he delivered the 1999 Budget in October.
Despite budget projections of a 5 per cent growth in the local
economy in 1999, "more than double the growth rate of the
global economy which is expected to be around 2 per cent, Kuei
Tung stressed the need for the country to conserve foreign exchange
to support the export sector.
"Although the economy is performing creditably, we must continue
to exercise financial restraint," states Kuei Tung. "One
critical aspect of this process is to dampen consumer demand."
In light of this, the Finance Minister has imposed a significant
increase on the rate of import duty on new cars and has increased
the Special Registration Fee on locally assembled used vehicles,
in some cases by as much as two-thirds.
In the new schedule of prices, the Special Registration Fee for
motor vehicles with engine size not exceeding 1799cc was initially
increased from TT$20,000 to TT$30,000. Motor vehicles with engine
size larger than 1799cc but not exceeding 2499cc has risen from
TT$30,000 to TT$50,000, vehicles with engine larger than 2499cc
but not exceeding 2999cc from TT$30,000 to TT$70,000 and those
with engine size exceeding 2999cc from TT$30,000 to TT$90,000.
Speaking out against the move, Joel Ramsahai , President of the
Used Car Dealers Association, has described the move as a "slap
in the face and a move that will lead to a demise of the industry."
He used car dealers were to hear of the new measure and the Association
held talks with authorities to persuade the Minister to amend
his proposals.
"The bottom line is that we feel the Minister has ignored
a viable three-year old industry and has taken away any chances
that the nation's middle income earners have to own and maintain
a car."
Unmoved by requests of dealers and Opposition Senator Nafeesa
Mohammed, to grant a moratorium, the Minister said he did not
share the view that a special registration fee "is unreasonable
if it were a car no more than five years old."
The Minister stressed that while it was Government's policy to
allow cars no older than five years into the country, "we
see cars that are being brought in through clandestine means that
are 11, 12, and 13 years old.
"It was not the intention of the Government to have Trinidad
and Tobago become a dumping ground for used cars," he added.
"It is totally unfair, what this government has done to the
used car dealers," he says. "Currently, I have two containers
of ordered cars in storage on the docks at a space rental fee
of 175 per container, per day," he complains.
"Customers have already made down-payments toward owning
some of these cars, but since the new fee, all of them are asking
for their money back. I also have17 containers of cars in transit.
That's at least 1 million dollars worth of goods right there,"
said a grieved Ramsahai. "What are the dealers going to do
with all those cars that nobody can afford?
"Our backs are against a wall," he continued. Ramsahai
also claims to be still owing the bank and he now has had to deal
with bounced cheques for the first time since his business opened
two years ago.
"Eight bounce cheques in just one month," he said, "I
am going literally broke and I just do not know what to do."
A solution to his problems does not seem imminent either. Minister
Kuei Tung has himself admitted to not having all the answers to
the problem. He did say though that Government would seek "to
address some of the anomalies in the economy, including the used-car
market.
The unwillingness of government to grant a moratorium allowing
the car dealers to sell off their stock of merchandise has raised
a barrage of suspicions and accusations. Despite claims from the
finance Minister that it was not prudent to forewarn dealers of
the new measures, disgruntled dealers are claiming that a massive
sale by a leading used car dealer who licensed up to 200 used
vehicles and sold off a considerable amount of stock at cost price,
only weeks before the budget was suspicious.
The dealer has however denied prior knowledge of the new law and
claims to be affected as badly as any other used car dealer by
the increase.
"We have used the same tactic as others in an effort to stabilize
car sales and salvage our business," stated a spokesman for
the dealership, "we have reduced the price of all our cars
to counteract the impact of the rise in registration costs."
Other used car dealers such as Bamboo Marketing Limited are also
reducing the price of their vehicles by up to US$2,000."
There has been mixed reactions from the public, ranging from anger
at the imposed fee to expressing satisfaction that the dealers
have been given their just desserts. Many argue that the businessmen
have made a windfall in the industry for the past three years,
importing the cars at no more than US$100 each and selling them
for as much as US$5,000
"Just being able to absorb the increased licensing fees by
such a significant amount shows that they were ripping us off
in the first place," says one disgruntled buyer. Others hold
the view that the move will put back some perspective and "value"
into family life and responsible spending.
The average worker has a gross salary of between $500 and $700
per month.
"I pay a monthly installment of about US$175. When this is
added to the US$150 in maintenance and fuel costs, having a car
moves out of the reach of the average citizen," says Steve
Norton, a sales clerk from Belmont, Port of Spain.
Owning one of these "status symbols" very often leave
families with less than enough money to feed themselves, yet alone
meet everyday expenses such as household bills and school supplies."
He elaborated that this mad rush to suddenly own a car is screening
the country's true need to develop a safe and efficient public
transportation system. Most people work within a reasonable commuting
distance from their homes and do not even need to own a vehicle,
he argued.
Dealers agree that the new law will displace many in the industry.
Full-time lot staff has been cut by half in some instances, and
there is no longer a need for part-time staff. Ramsahai voiced
his concern, stating that the industry supplied both upstream
and downstream employment to more than 5,000 people.
But while used car dealers are 'up in arms', new car dealers have
strengthened their position as they believe the playing field
has been levelled.
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