Sri Lanka’s automobile sales have fallen sharply due to high interest rates and import duty, taxes including VAT on imports as well as the refusal of banks and financial institutions to grant leasing facilities.
Ceylon Motor Traders Association President, Senaka Amarasinghe, also the Managing Director of Car Mart Ltd, told The Sunday Times FT that annual auto sales have dropped by 50 % to 18,951 units in the 11 months (to March) in 2008 /2009 compared to the same 2007/2008 period.
He disclosed that these taxes including excise duty on vehicles were the highest in the region “In addition to high taxes, the interest rates on loans have been raised, and customers are not willing to pay higher interest rates to purchase a vehicle,” he said.
He added that a directive by the Central Bank (CB) to local banks to increase margins on Letters of Credit to 100 % has also affected sales across the island. The 1 % Nation Building Levy on company turnover in the 2009 budget is also an issue.
Mr. Amarasinghe said that almost all motor car companies in the country are facing cash flow problems owing to the severe drop in sales and have had to cut down all overhead expenditure and retrench staff to survive in the business. Another reason for the current drop in car sales is that all car dealers imported approximately 15,000 new cars on permits given to doctors and senior government officials in 2007 which is the quota permit requirement of the country for five years. He said that these permits are being issued once in five years and the used cars of these doctors and officials have come to the local car market creating excess in supply with a less demand scenario pushing the industry on the whole towards a critical situation.
While many companies are running at a loss the bigger firms such as United Motors, DIMO, AMW and Toyota Lanka were going through tough times, recording a sharp drop in sales during the past three months. Some businesses are unable to sell even five vehicles per month since people are not willing to buy vehicles at higher prices, he said.
Many small car sales centres are experiencing almost zero business, according to the General Secretary of the Automobile Dealers Association, Faiz Zahir. He said at least 20 car sales centres have been shut down as they didn’t have sales in the past two months. Earlier the average of registered car sales by a small car dealer was around eight per month but in the past two months not a single car has been sold, he said. This, he added, was confirmed by his association’s membership of 200 dealers.
The current financial crisis faced by finance and leasing companies is the other reason for the drop in car sales in the island. Mr Zahir said that most of the finance companies have stopped leasing facilities. Normally the Sinhala and Hindu New Year perod sees a vehicle buying trend but not this time.
The government increased the import duty on vehicles and spare parts, from the 2008 budget hence, the prices of vehicles have risen by 200 to 280 %. Taxes on a 1800 CC car have risen by 237% to 266% while taxes on vehicles below 1500 cc have risen by 173% to 197%.
In this crisis situation, some companies have adopted various marketing strategies to promote sales. A new leasing facility by AMW provides facilities for potential customers to purchase a Suzuki M800 car today and commence lease installments payments after six months. Another dealer, the US Car Company is offering a concessionary package for customers to pay 50 % up front and the balance in 12 months.
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