Sri Lankan new car importers call for controls on competition
ECONOMYNEXT – Ceylon Motor Traders Association (CMTA) has urged Sri Lanka’s government to regulate vehicle imports by registering all importers including individuals, saying new import limits prompted by a glut of small cars had hit their earnings, as a soft-peg of the rupee came under pressure from unsterilized excess liquidity geneated by the central bank in July and August 2018.
The CMTA, representing all major international automakers, suggests the government implement a scheme to register vehicle importers “as a first step towards controlling the quality and quantity of imports of motor vehicles.”
They said in a statement the association acknowledges government concern over the sudden depreciation of the Sri Lankan rupee and accept the need for new import controls.
These include a mandatory 200% cash margin on the establishment of letters of credit for import of vehicles, temporary suspension of ‘permits’ and the increase of Loan to Value (LTV) ratio for vehicle financing.
“Like the government, the association too has been concerned with the rapid increase in the import of motor vehicles to Sri Lanka in the first half of 2018,” it said.
The increase in imports has been led by the growth in small cars below 1,000 CC which accounted for 90 percent of imports from January to August 2018.
“From the total vehicle imports in 2018, 86% of them were imported through the grey market,” the CMTA said, referring to used cars shipped by so-called re-conditioned car dealers and individuals mainly from Japan.
“The CMTA feels that there is a glut of vehicles imported into Sri Lanka and the numbers imported are not justified by the size of the market. Many of these vehicles are imported by individuals or private dealers who have the capacity to stock large volumes.
“It is these volumes of unregulated imports that is necessitating the drastic action by the Government, which is in turn having a negative impact on the financial health of the CMTA membership.”
The full statement follows:
The Ceylon Motor Traders Association (CMTA), established in 1920 is one of the most senior automotive trade associations in the region, and represents the worlds’ leading automotive manufacturers, through their local agents, in Sri Lanka.
The association acknowledges the Governments’ concern in response to the sudden depreciation of the Sri Lankan rupee. Whilst understanding that the reason for this decline
in value, were factors external to Sri Lanka, they realise the Governments’ need to adopt policies that control imports. Whilst these policies impact the CMTA’s members financial well-being, the Association accepts the basis on which the Government took drastic steps to control the import of vehicles – by adopting a mandatory 200% cash margin on the establishment of LC’s for import of vehicles, the temporary suspension of ‘permits’ and the adjustment of Loan to Value (LTV) ratio for vehicle financing.
Like the Government, the association too has been concerned with the rapid increase in the import of motor vehicles to Sri Lanka in the first half of 2018. The increase in imports has been led by the growth in small cars below 1,000 CC. From January to August 2018, a staggering 90% of the total vehicles imported were in this category. From the total vehicle imports in 2018, 86% of them were imported through the grey market.
The CMTA feels that there is a glut of vehicles imported into Sri Lanka and the numbers imported are not justified by the size of the market. Many of these vehicles are imported by individuals or private dealers who have the capacity to stock large volumes. It is these volumes of unregulated imports that is necessitating the drastic action by the Government, which is in turn having a negative impact on the financial health of the CMTA membership.
The CMTA members work on five-year business plans which are agreed on between the agent and the manufacturer. The manufacturer and the agent evaluate the market and make their plans based on rational expectations of market needs and growth. These plans cannot be changed significantly within a 12-month period. Included into these plans are customer service facilities such as workshop space and trained staff. Therefore, the association’s members face severe hardship when drastic policy changes are implemented unexpectedly.
The CMTA suggests that the Government implements a scheme to register vehicle importers. Presently anyone can import a motor vehicle and sell this vehicle to the public of Sri Lanka. The public buys this vehicle in good faith. This vehicle could have been submerged by a flood, been in a serious accident or even stolen. These vehicles are not supported by the manufacturers’ warranty and are not supported by the manufacturer for recall or safety actions that may be implemented from time to time, or for software updates that are more regularly executed. The reason for this is that the manufacturer is unaware that the vehicle is in Sri Lanka, as it was built for another market. The invoice values of these imports may not reflect the genuine transacted value of the vehicle being imported. This is because the source issuing the invoice for the said vehicle is not a credible corporate entity. There is also no check on if the vehicle being exported has a finance taken out against it.
By registering the vehicle importer and requiring this importer to have submitted their annual returns to the Registrar of Companies, and pay their dues to the Inland Revenue Department, the consumer is at least to some extent assured that he is buying a vehicle from a credible corporate entity. The registration of the vehicle importer could be a first step towards controlling the quality and quantity of imports of motor vehicles.
The CMTA members are all audited by the manufacturers they represent, and the vehicles they import come directly from the manufacturer with full warranty so the Sri Lankan public is assured of the quality of vehicle and the credibility of the agent.
The CMTA also hopes the Government will honour its promise to reimplement Permits within a year. Many of the associations members knows first-hand that thousands of Government employees were planning to purchase a motor vehicle and are now denied this opportunity.
In conclusion, the CMTA states that they look forward to working with the Government to define a policy framework that will generate sustainable growth for the Industry, without having to resort to drastic import control measure implemented in an unexpected manner.
(COLOMBO, 04 October, 2018)