Irish Independent

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

- By 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-todate 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)

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