Customs poses no obstacle for Ferrari dealer
Habit of paying full tax helps Cavallino Motors
An overzealous Customs Department has sealed the fate of a number of luxury car importers, but the new tax system based on retail prices has helped official car dealers like Ferrari Thailand, which has already paid full taxes on its vehicles.
The government’s crackdown on luxury car importers resulted in the impounding of more than 300 cars from dealerships across Bangkok. As noted in a previous Bangkok Post report, the Department of Special Investigation found that importers had paid unusually low taxes on 336 Italian cars and north of 1,000 British cars. The collective tax shortfall for the vehicles is estimated at more than 9 billion baht.
The government reaction follows last year’s change in the luxury vehicle excise tax structure. Under the current scheme, taxes are based on the retail price of the vehicles, rather than on the ex-factory price and cost, insurance and freight (CIF), which gave dealers ample room to understate the value of their imports.
Stronger enforcement of the tax scheme has resulted in a Ferrari marketplace for dealers that have always paid taxes correctly, said Nandhamalee Bhirombhakdi, managing director of Cavallino Motors, the sole official importer of Ferrari in Thailand. No ultra-luxury vehicles are produced in Thailand, which means all brands in the segment are burdened with the same tax.
Ferrari is now on equal footing with informal dealers, who could provide deep discounts on the thick margins they obtained by dodging taxes, said Mrs Nandhamalee, who is married to Voravud Bhirombhakdi, vice-managing director of Boonrawd Trading, the brewer of Singha and Leo beers. Cavallino is a joint venture between the Bhirombhakdi and Yoovidhya families.
Competing with unofficial distributors on price was a tall order when Cavallino started in 2009, years after the last official Ferrari distributor went out of business. The Customs Department, along with Italian authorities, investigated more than 390 Ferraris and 185 Maseratis.
Mrs Nandhamalee said the decision to pay the sticker price for vehicles, however, has acted as an entry barrier in recent years, and filing the correct taxes made the government “aware” of the correct pricing of the vehicles, making it harder for dealers to clear mispriced vehicles through customs.
As prices across the market level off, competition is shifting towards the provision of additional services like warranty repairs and personalisation.
“For many of our clients buying a Ferrari is a dream come true, and they are looking to purchase an experience more than a simple product,” Mrs Nandhamalee said.
Warranty servicing is a money-losing service at best, she said. Even so, the dealership is still looking to increase its service team and the number of hoists in its shop from six to nine, as it competes with dealers at home and abroad. Per Ferrari policy, a customer can only receive warranty repairs in the country in which he or she bought the vehicle.
As competition toughens and cars move to a “longer warranty era”, the company will subsidise repairs with services like painting and welding, which can be offered when a customer comes to cash in a warranty.
Price standardisation is also helping dealers push the notion that consumers should think of supercars as investments (just like a watch or a condominium), rather than as commodities.
“There is a very low depreciation rate for these vehicles,” Mrs Nandhamalee said. “Some special editions even appreciate over time.”
She said the cars will maintain their value even as consumers move to electric vehicles.
“People keep their natural aspirated engines, even as carmakers move to turbo engines,” Mrs Nandhamalee said. “I think we will observe a similar phenomenon between turbo and electric engines.”
Structural changes aside, Thailand remains the country with the highest luxury vehicle tax in the world, amounting to 328% of the vehicle’s cost. There has been talk of reducing the import tax, but there are no concrete measures on the table.
Earlier this year, the Customs Department proposed lowering luxury car import duties, but no further details have been made public.
“Something below 300% would be reasonable and fair,” Mrs Nandhamalee said.
This tax burden is in line with other countries in the region, like Singapore and Indonesia, but much higher than similar taxes in Vietnam and Malaysia. Given the exorbitant additional cost of owning the vehicles, fewer than 100 Ferraris are sold in Southeast Asia a year, compared with greater China, where 617 Ferraris were sold in 2017.
A lower tax would also help expand the base of potential customers of super luxury cars in Thailand, a group Mrs Nandhamalee estimates at fewer than 1,000 clients, worth 100 million baht or more.
“We could reach 5,000 customers as the tax drops and Ferrari introduces more GT models,” she said.
GT models, which are often priced lower than their sport counterparts, include four-door, four-seat models, which could broaden their appeal to families.
Cavallino Motors increased its sales 30% last year, a trend that Mrs Nandhamalee said will continue, absent major changes in the tax system. Growth in the overall market is hard to quantify in light of the unsettled claims from the crackdown, she said.