The motor industry is faced with challenges of traffic congestion and road discipline. This calls for a further increase in road infrastructure. However, for a small country such as Sri Lanka it is not a viable option, Chairman, Ceylon Motor Traders’ Association (CMTA), Sheran Fernando said.
“The CMTA is pushing for a mobility plan that will ensure a better transportation ecosystem. The motor industry which is vulnerable for external factors needs a level playing field to compete. The policy framework needs to be favourable for the industry to sustain, he said in an interview with Business Observer.
Excerpts:
Q. What is the current status of the motor vehicle industry in Sri Lanka?
A The motor vehicle industry is fiercely contested and players are exploring innovative methods to grab emerging opportunities while carving out unique niches for themselves. The growth avenues that most serious vehicle importers should follow must be improved through after-sales service, and by offering better-quality facilities such as enhanced customer care and technical expertise.
Q. How has the motor vehicle registration recorded over the last few years?
A The motor vehicle registration number has gone down significantly. More used vehicles were registered as against new vehicles.
In 2017 Sri Lanka’s motor vehicle population grew by 7% to 7.2 million. This is one of the many facts and analysis you can find in the latest edition of the annual report on the country’s motor vehicle market published by the Ceylon Chamber of Commerce.
In 2017 there was a rise in import expenditure (5%) despite a fall in import volume (11%) with yearly new registrations declining by 9%.
This report prepared by the Economic Intelligence Unit of the Ceylon Chamber of Commerce, provides a detailed statistical analysis and industry overview of Sri Lanka’s Motor Vehicle Market, featuring the latest information on registration; vehicle population; imports of vehicles by vehicle category, top brands imported under each vehicle category and overview on the global motor vehicle market and global electric vehicle market.
Q. Does the policy framework support the growth of the industry? What regulatory measures the industry push for at present?
A The policy framework hinders the growth of the Industry. The policy framework is adhoc, and stop-start.
The Government has to stop discouraging industry growth when they need duty revenue, and actively discourages growth when they are faced with BOP problems. The industry needs to start reading the macro economic signals and take preparatory action.
Anyone can import a motor vehicle. The importer does not have to register as an importer. All importers should be registered and the government should ensure they are compliant on taxes, statutorily etc. The Corporate tax is effectively around 35%. However, many importers do not pay taxes. Many importers get nearly new cars and register them as ‘brand new’. The definition of a brand new car is a car that is exported by the manufacturer, to an agent who is under contract with the manufacturer. Any car can be imported to Sri Lanka. Many of these cars are not suitable for our environment. There should be a system of homologation where the manufacturer confirms what makes and models are suitable for our market. The registered motor vehicle importers do not have a level playing field.
Q. What is the mobility plan the CMTA advocate for Sri Lanka? What is its current status?
A The CMTA is working with international future mobility experts to study the present transportation eco system and make recommendations of how we should use modern technology to improve the efficiency of our system and also to reduce congestion, reduce carbon footprint etc.
When considering the internal transport, we are far behind the countries such as Hong Kong, Dubai and India. Because of these things we have grown a door to door public transport system. The government’s inability to give a responsible public transport system has given rise to private sector to step in. The mobility plan is electro magnetic capsule based transport system.
The international mobility experts will study local environment and requirements and forward a set of proposals to government for approval. We feel that it is the responsibility of the CMTA to be adherence of the plan. We will also make all the stakeholders accountable to the plan. This is the solution to ad-hoc policies.
Q. What are the concerns and challenges for the motor vehicle industry in the country? (Rupee depreciation)
A It is the lack of coherent and consistent policy governing the industry. The exchange rate fluctuation and high interest rates also impact the industry. Other policy interventions such as finance restriction and LC margins also affect the industry. The contradictory signals given to the industry, on duty increases and permit issuances have a negative impact while unregulated importers and not having a level playing field are big concerns.
Q. What is the way forward for the industry?
A The action taken by the government to regulate the industry by registering importers will have far reaching benefits in the long run. It is necessary to legislate the definition of a brand new vehicle. The industry has taken measures to formulate a long term plan, obtain political concurrence on this plan and hold politicians accountable to deliver this plan.
Q. What is the role played by your company to fuel the growth of the industry?
A We play a significant role in the premium transportation segment. Further, we play a role in bringing in international best practices of management, and training.
Q. What is the role of CMTA and its plans for the next two years?
A The Ceylon Motor Traders Association (CMTA) which was set up in 1920 is affiliated to the Ceylon Chamber of Commerce celebrated its 99th year recently. It is the most senior automotive trade association in the region. The CMTA represents all major international automotive manufacturers, through their agents. The members of the CMTA are collectively employ and train thousands of Sri Lankan citizens. They bring in international best practices in engineering and management, making the pool that is trained and employable internationally.
In 2019, the Association is looking to develop a policy document, detailing a Future Mobility plan for Sri Lanka. The CMTA is looking to work with international applied research agencies and international donors to create this document. Once created, the association will work closely with the government towards the implementation of the recommended policy.
The Ceylon Motor Traders Association is widely accepted as the voice of the Sri Lankan Automotive Industry.
It ensures sustainable growth for the industry by being the voice of the industry and working with the various industry stakeholders to ensure the long term policy initiatives that will be recommended are implemented.
The CMTA members work on a 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 implement a scheme to register vehicle importers as it could be a first step towards controlling the quality and quantity of imports of motor vehicles.
This will ensure and assure the consumer that at least to some extent that he is buying a vehicle from a credible corporate entity. At present, anyone can import a motor vehicle and sell it to the public. This vehicle could have been submerged by a flood, been in a serious accident or even stolen. The invoice values of these imports may not reflect the genuine transacted value of the vehicle being imported as the source issuing the invoice is not a credible corporate entity.
By registering, the vehicle importer is required to submit annual returns to the Registrar of Companies, and pay 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.
Q. What action do you propose to ensure a vibrant motor industry in Sri Lanka?
A The CMTA is looking 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.
The CMTA also hopes the government will honour its promise to re-implement 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. The CMTA is pushing for the Future Mobility Plan which will benefit the country as a whole. .
Q. In your view, how will the motor vehicle industry perform in the next two years?
A The industry is a function of Government policy, because of high import duty. 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.
While 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 has a negative impact on the financial health of the CMTA membership.
Q.What immediate changes do you envisage with regard to the vehicle congestion in the country?
A Congestion needs to be addressed with better public transport, more parking facilities at entry points into the city, and laws about what vehicles can travel on what roads
Q.What action is necessary to minimise environmental pollution contributed by the vehicle population?
A It is important to encourage electric vehicles and have legislations for more efficient engines. However, the present policy has been supportive to a certain extent in this regard.