Drive to rev up car sales

STIMULUS: MANUFACTURERS CALL FOR VARIOUS TAX CHANGES Expectations are for market to achieve pre-Covid levels ‘by 2022 and onwards’.

The carbon dioxide (CO2) tax on new vehicles is a good tax to temporarily discontinue to stimulate demand for new vehicle sales following the severe impact of the Covid-19 pandemic, an automotive conference heard on this week.

National Association of Automobile Manufacturers of South Africa (Naamsa) vice-president and managing director of Ford South Africa and sub-Saharan Africa Neale Hill said this is because the discontinuance of the CO2 tax would have a limited effect on emissions without any change in fuel quality.

Naamsa commissioned B&M Analysts to conduct a study to investigate and make recommendations on how best South Africa can stimulate demand for new vehicle sales, production and the entire automotive value chain because of the impact of Covid-19, Hill told the HyperMobility virtual conference organised by Messe Frankfurt SA and Naamsa.

Hill said that in terms of recommendations, the primary focus was on stimulus interventions that are fiscally neutral and that it only considered tax-based support mechanisms and an amendment to the treatment of value-added tax ( VAT) as part of the leasing options.

“Based on our modelling of the government’s net fiscal position, this would improve by R1 billion, with the industry benefitting from an additional 11 756 units of sales.

“An ad valorem tax reduction will have the most significant impact, given price elasticity in the market,” said Hill.

“Based on our modelling, the government’s net fiscal position based on a reduction of the ad valorem rate from 0.0003 to 0.000022 would remain unchanged, with the industry benefitting from an additional 16 635 units of sales,” he said.

Hill added that the removal of the upfront payment, or capitalisation of VAT, for private lease finance agreements would allow for the monthly payment of VAT as per rental agreements, which would attract more private purchasing through leasing.

He said an optimistic economic forecast is for a V-shaped recovery globally and for South Africa, and new vehicle sales to rebound sharply from the extreme lows recorded in 2020 – although expectations were for the new vehicle market to only achieve the pre-Covid-19 market level “by 2022 and onwards”.

Absa chief economist Jeff Gable told the conference the South African economy was only expected to get back to the same level it was in 2019 in late 2024 or 2025. “The impact of Covid-19 is substantial and is going to be long lasting,” he said.

Gable stressed that investment was necessary for the economy to grow but any recovery in the economy would be private sector-led because of the poor state of government finances.

He said that in the same way businesses only invest when they felt confident, households tended only to spend discretionary income if they felt more confident.

Consumer confidence was very weak and high-income consumers are no exception, with large discretionary expenditure associated with the vehicle industry, he said.

“For the first significant time since the mid-1990s, wealthier households in South Africa say they are worried about their financial position,” he said.

“You can have significant incentive programmes, interest rates that are at 50-year lows, but at the end of the day, a big-ticket purchase – something like a vehicle – is also a high-confidence purchase, as well.”

A tax reduction will have the most impact