Motor traders renew call for national industry policy
31 Aug 2015 - {{hitsCtrl.values.hits}}
By Chandeepa Wettasinghe
The Colombo Motor Traders Association (CMTA) renewed its call for a national motor industry policy, and is in the process of setting up a long-term policy paper for the use by the government in the midst of a balance of payment crisis and highly congested urban environment.
“It is a very ad-hoc type of policy that takes place. This year we intend to push the development of a policy framework for the automotive trade, so that it can be presented to the policy makers,” CMTA Chairman Gihan Pilapitiya said at the organization’s AGM.
The motor industry has been used as a guinea pig for political and economic experimentation by both the past and current regimes during their budgets; reducing import duties to gain more votes and increasing to gain state revenue.
“The car industry is a place for the government to fall back when money is less,” Pilapitiya said.
With a balance of payment crisis looming, the government may opt to increase duties in the 2016 budget.
“They should not go to both ends. They have to keep it at a stable level.
They shouldn’t reduce it too much for one or two years and suddenly increase it. Okay, the government has to make money, but they should balance it,” Pilapitiya added.
He noted that the current increase in the brand new auto market is artificial due to an abundance of duty-free permits.
These permits are given to the bloated public service, and are transferable.
“They should reduce the duties and reformulate the permit scheme. If you look at the brand new SUV market, over 70 percent is imported through permits. People who are given permits usually can’t afford these, so they sell the permits. It’s a business,” he added.
However, he noted that the overall boom in the auto industry is due to the importation of used vehicles—already benefiting from the depreciation table—without control.
The interim budget had introduced an annual fee of Rs.1.5 million for all car salesmen and dealerships.
Pilapitiya expressed that such a fee is ineffective, and instead recommended that imports be restricted based on accreditations and licenses given to those who invest in infrastructure and customer care and have proper financial backing.
“They have to restrict the importation of vehicles. Even a wayside boutique will have a vehicle for sale, because they invest Rs.3 million, import a vehicle and make Rs.300, 000 profit. No one is bothered about after-sales service, spare-parts availability or proper software for modern vehicles,” he said.
Pilapitiya added that consumers do not manage their demand as well, with cars being bought the sake of buying given the increased income through administered prices cuts and wage hikes, as well as cheap credit schemes offered by banks and finance companies due to lower interest rates prevailing.
Cheap credit and lower fuel prices have resulted in massive congestion in urban areas.
The head of leading local stock brokerage and research house recently recommended a Singapore style limit on car ownership and an urban congestion system.
Pilapitiya offered similar sentiments.
“We can help the government understand markets better. Compare with it with places like Singapore, look at their policies and see whether we can help the country in imports, duties and environmental issues,” he said.
He said that the government should construct car parks outside the Colombo city limits and offer shuttle services in the form of trains or buses to reduce congestion as well.
“Ultimately for the country, this formula of everybody owning a car isn’t going to work. It’s a disadvantage for the vehicle market, but you can’t help it if there’s going to be a national policy,” he added.
Electric cars: Too early?
Pilapitiya said that Sri Lanka is too early to be using electric vehicles despite the duty reduction in January’s interim budget.
“I don’t know with what motives the electric car tariffs were reduced to 5 percent in the first place,” he questioned. While lauding the environmental friendliness and cost effectiveness of such vehicles, he said that Sri Lanka lacks the infrastructure for them.
“A lot of these vehicles coming in are not brand new. They are used vehicles that are imported. The customers don’t have any after sales services. That’s an issue. I think it was a bit too early to make it (tax) 5 percent,” he said.
After accounting for the delay in placing orders following the duty reduction, 1,080 electric vehicles were imported from March to July 2015. Only 130 electric vehicles had been imported from October 2013 till then.
Currently, the Nissan Leaf makes up 97.4 percent of the electric car market, despite the local Nissan dealer not importing or supporting the vehicle.
The Mitsubishi franchise holder has been importing one model, while the BMW and Kia dealers have also entered the market.
Pilapitiya’s views are supported by the unusually high premiums charged by insurance providers on electric cars due to the lack of spare parts and official service.
Further, the lack of fast recharge centres present in developed countries—except for state owned centre launched by former Power and Energy Minister Champika Ranawaka—mean that electric car usage is limited to a range of around 70 kilometres from a customer’s home, given the Leaf’s range of 135 kilometres.
The finance arm of Richard Peiris Group had had plans to introduce fast recharge centres at Arpico outlets, which have not yet materialized.
However, Ranawaka had claimed that Sri Lanka should aim at owning 1 million electric cars in the coming years, and said that the upcoming revision to electricity tariffs would allow electric car owners to charge their vehicles for cheaper at night.
He had said that the country phasing out imported oil in favour of indigenous fuel and renewable energy sources would also help towards easing the balance of payment.
Oil used to form the biggest portion of Sri Lanka’s import bill.
Meanwhile, some electric car owners have been observed setting up solar power systems at their homes to ease the cost of recharge.
New Code of Ethics
The CMTA has introduced a new Code of Ethics for its membership to follow and avoid future misunderstandings or conflicts of interest.
“This is the first phase of it. We plan to extend the code of ethics that is launched today so that we gain and maintain the respectability and credibility of our industry,” Pilapitiya said last week.
He said that some misunderstandings had taken place where some dealers were importing both new and refurbished cars of brands they were not holding the franchise to.
“You can use it as a promotional tool and also present it to your principals,” he added.
Meanwhile the constitution of the CMTA too was amended to bar dealers from importing new vehicles of other franchises.
“A member is allowed and expected to sell and import brand new motor vehicles to which they hold franchise. This is brought in to clear some misunderstandings we have in the market and to avoid any misunderstandings we may have in the future,” Pilapitiya said.
