Sri Lanka’s vehicle conundrum
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At a motor show at the BMICH Colombo last week, there were gleaming new vehicles on display in the hall for connoisseurs and those with deep pockets to not only take a look but take their pick from the best of the best.
From the mid-range of Toyota Yaris, Hyundai, Nissan, Honda, Perodua, Suzuki and Mitsubishi to the high-end like BMW, Porsche, Audi, Land Cruiser, MG, Mercedes Benz, Volvo, Range Rover and Jaguar; the cars, SUVs and trucks were up for grabs, that is if you were able to fork out a couple of millions and still have something left in your wallet.
While in the hall there were these gleaming new vehicles, some with attractive female models alongside to entice buyers; outside the hall rows of old, well maintained ‘crocks’ (old cars) with a CY or EN number plate were housed under a shed for those who loved a glimpse of old cars.
Meanwhile, on a city road the other day, I saw a small BMW — like a Maruti Suzuki – driving through Colombo. It came as a surprise as many of the high-end cars in the business – BMW, Mercs, Audis etc – have stayed in the larger model segment of cars for decades.
It so happened that my friend ‘Reconditioned’ Ranjith – a know-all in the second-hand car market, had also visited the same motor show and was excited by the new range of cars but floored by the price.
“Machan, how can one afford it,” he asked, during a Thursday morning call. “Well these are for a small segment of the population who can afford and love nice cars and want comfort and grandeur,” I replied.
“By the way, I heard an interesting story. Apparently, one of the reasons why the car market is down is because the Government has closed the tap on drug money circulation with a series of raids on drug busts,” he said, changing the subject.
“But how? It doesn’t make sense — drug money and car market,” I said. “It appears that when drug money illegally enters the economy, it increases the money in circulation and thereby gets into various sectors. It doesn’t necessarily mean that everyone who buys a car does so with illegal money but applies to a small segment which then pushes demand,” he added. “Interesting,” I replied.
However, the car market was not specifically referred to in a newspaper ad this week by the Central Bank on money laundering and anti-terrorism financing.
In the notice, the Central Bank reiterated that real estate agents, gem and jewellery dealers, casino business owners, etc should complete the key Anti Money Laundering and Countering the Financing of Terrorism (AML/CFT) obligations under the Financial Transactions Reporting Act No. 06 of 2006 (FTRA) and Designated Non-Finance Rules No. 1 of 2018. The Central Bank has been repeating these public interest notices in recent times in a bid to deter money laundering and illegal money circulating in the economy.
Returning to today’s conversation vis-à-vis the motor show, the vehicle market has, in reality, come down in recent times largely due to rising taxes and a sluggish economy.
Motor traders said they expect a further drop in vehicle imports after the 2019 Budget introduced a massive luxury tax while increasing duties.
According to official data, 9,837 vehicles of all categories have been imported in February, significantly down from 36,895 units in January and 38,427 units 12 months ago.
There were 2,347 car registrations at the Motor Traffic Department in February, down from 3,147 units in January and 5,024 units 12 months ago, it was stated, while small engine cars accounted for 90.2 per cent of the registrations.
Brand new motor car registrations rose marginally to 434 units in February, from 429 units the previous month, but down from 773 units 12 months ago.
The number of second hand motor car registrations fell to 1,913 units in February, from 2,718 units the previous month and sharply down from 4,251 units, 12 months ago, it was reported. SUV registrations were down to 534 units from 735 units in January, but rose from 464 units a year ago.
Premium motor cars recorded 111 units in February, marginally down from 113 units the previous month and 188 units 12 months ago. Motorcycles recorded 23,165 units during February, down from 28,114 units in January and 27,812 units 12 months ago.
As stated, one of the reasons for sluggish demand is the current economic conditions, which have seen slow private sector growth and put pressure on consumer buying.
“Reflecting the impact of policy measures to curtail vehicle imports, expenditure on personal motor vehicle imports showed a significant decline in December 2018 compared to the corresponding month of the previous year,” the Central Bank said in its December 2018 statistics.
While the overall ‘personal’ vehicle imports for 2018 saw a significant 103.6 per cent rise to US$1.5 billion against $772.7 million in 2017, purchase values fell by 18.9 per cent in December 2018 to $77.3 million versus $95.3 million in December 2017.
Economic growth in 2018 reached 3.2 per cent, marginally higher than 3.1 per cent in 2017 but lower than 4.5 per cent in 2016. Private sector growth, as described, has – in line with growth projections — been sluggish resulting in even a few cases of companies being unable to pay the monthly wages, according to some reports.
Today’s conversation – essentially a ‘haves’ versus ‘have-nots’ one — floored Kussi Amma Sera who was for the second week running on a subdued note with her friends away in the village. “Mahattaya … apita koheda vahanayak (No vehicle for us Sir!),” she shouted from the kitchen while preparing breakfast.
A subdued vehicles’ market is a plus and a minus for the Government’s revenue projections and import costs. While lower vehicle sales owing to higher taxes hurt tax revenue – a key component of revenue earning measures — it helps to reduce imports which, in turn, result in fewer dollars required for imports.
The small vehicles’ market is essentially for buyers who are affected by the pressure of daily travel owing to overcrowding in public transport – road or rail. A more effective public transportation system, a point-to-point system from home to office is the only way to reduce private vehicles on the roads, thereby helping to overcome the current overcrowding and snail’s pace traffic flow in Colombo. However, we have a long way to go — probably just a dream — in establishing such an efficient public transport system on the lines of Singapore or any developed nation.