Vehicle importers while acknowledging the need to minimise imports to curtail the outflow of foreign currency and infuse stability to the Rupee, raised concerns on the long term impact of controlling vehicle imports, which according to merchants is expected to plummet sales by around 50 to 60 percent in the months to come.
Importers welcomed the mandatory 200 percent cash margin on Letters of Credit (LCs), the temporary suspension of import permits granted to public sector officials and the adjustment of the Loan to Value (LTV) ratio from 70 to 50 percent for vehicle financing.
Vehicle Importers Association of Lanka (VIAL) President Indika Merenchige said its members welcome the government’s policy to reduce vehicle imports at a time when the country needs foreign exchange to stability the Rupee.
“We fully agree that there is a need to cut down on import of vehicles to ease the demand for foreign currency that puts pressure on the local exchange market,” Merenchige said.
So far the Rupee has depreciated by over nine percent, a pace faster than its peer countries such as India, Philippines and Indonesia.
The Ceylon Motor Traders Association (CMTA) in a communique recently acknowledged the government’s concerns on the sudden and sharp depreciation of the currency and the need for urgent policy measures to slash imports.
The Association has been concerned with the staggering increase in the number of vehicles during the first half of this year led by imports of small cars below 1,000 CC.
According to statistics small cars under 1,000 CC accounted for around 90 percent of the total vehicles imported during the first eight months this year. Of the total imports, 86 percent were imported through the grey market.
CMTA noted that a large number of vehicles are being imported by individuals and private dealers who have the capacity to stock large volumes and that it is the unregulated imports that need to come under the scrutiny of the government.
The Association stated that currently any one could import vehicles and sell them in the local market without being checked. These vehicles are bought in good faith by the public not realising the condition of the vehicles before they are being imported and that these vehicles are neither backed by a warranty by manufacturers nor a mandate for recall and safety action.
In its communique, the Association further states that the public could be protected to a certain extent if importers are made to submit annual returns to the Registrar of Companies and pay dues to the Inland Revenue Department.
Vehicle importer associations also said that their members work on long term business plans agreed upon between agents and manufactures and that when business plans undergo constant changes it has an adverse impact on continuing the business.
“There should be policy stability and consistency for any industry. Constant changes in the tax structure has affected vehicle importers in a big way. We have been appealing to the policy makers to address this issue and carry out a proper system for vehicle registration that would help put an end to the grey market,” Merenchige said.
Sri Lanka Vehicle Importers Association of Sri Lanka (VIASL) President Ranjan Peiris said the Association welcomes all the steps taken to limit imports of vehicles as it is a dire need of the country to prevent the outflow of foreign exchange from the country.
He said sales of member companies have not dropped as expected due to the restrictions imposed by the government.
“We have not seen a decline in sales so far even though it was expected. However sales volumes could drop in the future. Increasing the cash margins, revising the LTV ratio and stopping permits to import vehicle temporarily are not measures to increase prices of vehicles but to restrict imports,” Peiris said.
VIASL comprising 145 members is in the process of preparing its budget proposals expecting the policy makers to facilitate a sound business environment for the motor trade ensuring a fair and orderly market for all players and a just deal for the public. Ideal Motors Director, Automotive, Chaminda Wanigaratne said the Rupee deprecation and the 200 percent cash margin on LCs are affecting all segments of the automotive industry this has a major impact on small and medium sector of the industry who contribute a large share to the rural economy through the transportation sector.
“The SME sector which is considered the back bone of the economy must be supported by the government through subsidy schemes for the SMEs in the automobile industry who play a pivotal role in the economic cog through transportation,” he said.
He said the safety and emission standards imposed by the government are good measures for public and environmental safety. However, the policy makers must take into account how new technology is being used in countries that manufacture them before introducing it locally.