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Column: Our proposal for Budget 2014? Swappage.

The scrappage scheme worked but only provided a once-off (though welcome) boost to both car sales and tax revenues. Swappage is focused on longer term benefits, writes Alan Nolan.

Alan Nolan

THE NEW 132 registration plate was a real success for both the motor industry and the State. After a terrible start to the year, following the Budget hikes in VRT and Road Tax, the July plate gave us a second sales period and reduced the fall in the market from 15 per cent in April to just below 7 per cent today.

That said, this year, just 74,000 new cars will be sold and a similar level is predicted for next year; 2013 will finish up as the second worst year (after 2009) in the last 20 years for new car sales.

Currently, sales are half of normal levels (European average car replacement rate). Commercial vehicle sales, which tend to be a barometer for the general economic wellbeing of the country, are 70 per cent down.

Our cars are ageing, the average age of a car on our roads is nine years old. This should mean more service and repair work for the industry, however the consumers who are most likely to have regular servicing and repairs undertaken are those who have newer cars. This impacts on new car sales as the older a trade-in is, the more expensive it is to change. As the fleet has aged, business has halved in the servicing and repair sector.

It’s true that we don’t manufacture vehicles

All of this has had a very negative impact on businesses and employment in our industry. We often hear comments from critics that the motor industry ‘isn’t a real industry’ because we don’t make the cars/trucks etc. It’s true that we don’t manufacture vehicles, but our sector employs 36,800 people (we employed 50,000 at peak levels) in 400 towns in Ireland, is the biggest employer of skilled young people in the country, taking-on the highest number of apprentices.

We employ 50 per cent more than the Pharma Sector (24,500 www.IPHA.ie) and collect around 13 per cent of all tax revenues for the State (26 per cent of all indirect taxes). We don’t really have any hang-ups on whether people refer to us as a sector or an industry but it is hurtful for the thousands of people working in this business when these things are said specifically to denigrate the work that they are doing and that, in my view, is unfair.

The State used to collect €2 billion in tax from new car sales but, since 2007, has lost an enormous €1.4 billion. Increases in VRT and in VAT in recent Budgets have not delivered any increase in revenues as car sales have fallen as a result. The lesson from scrappage was that the State can significantly increase its tax-take from new car sales, not by increasing tax but by offering an incentive.

Our proposal for Budget 2014

The scheme we are proposing is a very simple one, a €2,000 reduction in VRT where a six year old car (or older) is traded-in for a new car. We estimate that 17,000 extra cars will be sold through swappage. It would also increase used car sales and servicing due to the cycle of business generated by the resale of the trade-ins. Like scrappage, swappage would be of no cost to the State. In fact, 2,200 new jobs would be created and €80 million would be generated in extra tax revenues.

Scrappage showed us that incentives like this work but scrappage provided only a once off (though welcome) boost to both car sales and tax revenues but little impact on car sales for future years. swappage is focused on trade-ins, on car buyers who are more likely to re-enter a more normal new car change cycle.

The Government tax-take will only increase when new car sales begin to increase and there is no sign that this will happen by itself. The only time, in the last five years that new car sales exceeded 80,000 was during scrappage. Without such an incentive, tax revenues will not recover for years and employment and businesses in the sector will remain vulnerable.

Incentives

Swappage is about more than a €2,000 incentive as the industry will deliver additional support, as occurred under scrappage. In addition, consumer finance is more readily available with the addition of manufacturer’s banks and improved availability from the pillar banks.

New car sales are the lifeblood of our industry, generating trade-ins, servicing, repair and parts business but it is not just our industry that benefits. For Revenue, the equation is simple, every new car sold is worth an average of €8,200 in revenue. Giving a swappage incentive of €2,000 still leaves a gain of some €6,200.

Even encouraging a shift in some purchases from the 50,000 used cars that will be imported this year (due to a shortage of used cars) would benefit the State, as these will have paid some €150 million in VAT to the UK Exchequer and supported some 4,000 jobs there. In the current climate, we could do with those jobs and those VAT payments helping this economy.

Alan Nolan is the Director General of the Society of the Irish Motor Industry (SIMI)

Read: Increase of 17% in new private cars licensed in September

Read: Swappage scheme could generate €129 million for Exchequer, says motor industry

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