10,288 motor car registrations in Oct in Sri Lanka: JB Securities

Nov 11, 2015 (LBO) – October continued to recorded strong numbers for vehicle registrations in Sri Lanka although down from the record set in September, JB Securities said in a research note.

LTV cap of 70 percent was in force during October so it may have had some impact on the slowdown, the note said.

The change in the basis of valuation on which taxes would be charged would only come into effect on LCs opened on or after 18 Oct so its full impact will only be felt in late Nov and Dec.

Motor car registrations in Oct recorded 10,288 units, lower than 14,544 units recorded in Sep but significantly higher than 2,587 units recorded 12 months ago.

Brand new cars recorded 6,157 units in Oct down from 9,427 units a month ago but significantly higher than 632 units 12 months ago. Maruti volumes registered 5,224 units down from the record 8,029 units the previous month but yet significantly higher than 336 units registered 12 months ago.

One is not quite sure whether the slowdown is due to the LTV cap or more to do with last Sep volumes being an aberration due to a bunching of deliveries (waiting time on a Maruti Alto is 4-6 months). Micro volumes recorded 419 units down from 643 units in Sept.

Preowned cars recorded 4,131 units in Oct down from 5,117 units recorded the previous month but significantly higher than 1,955 units 12 months ago. Toyota recorded 1,414 units (Aqua 710, Axio 415), Suzuki recorded 1,461 units (Wagon R hybrid – 1,401) and Honda 685 units – all three brands have witnessed about a 20% drop from last month but volumes are holding up relative to August.

Financing share was 63.6% slightly down from 68.1% recorded the previous month.

Premium brand registrations recorded 100 units in Oct slightly down from 112 units a month ago but up from 53 units 12 months ago. Mercedes Benz recorded 34 new units (C-class 19, E-class 19 and S-class 1) and 28 preowned units (C-class 10, E-class 10 and S-class 1 unit) and BMW recorded 11 new units (3-series 1, 5-series 6) and 11 preowned units.

Electric cars recorded 529 units in Oct up from 459 units in Sep and a mere 6 units 12 months ago. Nissan Leaf accounted for a bulk of them recording 506 units up from 459 units a month ago. The other electric category consist of BMW i3 – 6, Benz B class – 8 and Volkswagen E-golf 5, no Teslas registered in Oct.

SUVs recorded 796 units in Oct down from 890 units in Sep and significantly down from 1,364 units 12 months ago. Toyota registered 164 units (Prado 141), Hondo 139 (12 months ago this number was 1,082) and Mitsubishi 239 units (Outlander 172 units, Montero 56) and Nissan with 94 units (X-trail hybrid – 92 units).

The SUVs from Honda, Nissan and Mitsubishi are hybrids that are mostly preowned, 60% of Toyota Prados are from the agent and the balance are preowned imports from Japan. Financing share dropped to 52.9% from the prior month’s figure of 56.7% and the high of 60% recorded a few months ago.

Hybrid registrations recorded 3,964 units in Oct down from 5,053 units in Sep but up from 2,962 units 12 months ago. The largest drop was seen in the motor car segment where volumes dropped from 4,595 units to 3,533 units, the SUV and van segment are relatively smaller in number so no major impact coming from them.

Van registrations recorded 1,041 units in Oct slightly down from 1,336 units in Sep but significantly up from 209 units 12 months ago. Toyota recorded 366 units in Oct down from 454 in Sep and Suzuki recorded 366 units down from 454 units the prior month. Toyota vans are mainly Hiace, Suzuki vans are mini vans. Financing share has dropped to 74.9% from 78.8% the prior month.

3-wheeler registrations recorded 8,115 units in Oct significantly down from 12,406 units in Sep but higher than 7,231 units 12 months ago. Bajaj gained share recording 89.5% followed by Piaggio with 6% and TVS dropping share to 4.5%. Financing share recorded 82.4% a drop from the normal level of 90%.

2-wheeler registrations recorded 31,275 units in Oct an increase from 30,289 units in Sep but down from 35,462 units recorded 12 months ago. Hero volumes went up 50% relative to the previous month recording 9,815 units and claiming market leadership – 31.5% share (Hero Pleasure – a scooter termed the ladies bike volumes almost doubled from 4,472 units to 8,101 units) whilst Bajaj volumes recorded 7,452 units dropping from 9,379 units the previous month losing its market leadership position. Financing share recorded 47.1% a drop from its normal level of 60%.

Pickup trucks recorded 386 units slightly up from 354 units in Sep and up from 254 units 12 months ago. Tata claimed a share of 74.3% in this category through its Xenon (174 units) and 207DI (98 units) models.

Mini trucks recorded 1,092 units in Oct down from 1,531 units recorded in August and also down from 1,127 units recorded in Oct. Brand share was relatively stable with Tata claiming 52.5% and Mahindra claiming 40.9%. Financing share was 88.9%.

Lite trucks recorded 574 units in Oct down from 701 units in Sep but up from 269 units 12 months ago. Mahindra is the market leader in this category with a share of 70% through its Bolero Maxi truck. Financing share was 88% a marginal drop from the normal level of 90%.

Medium trucks recorded 142 units in Oct down from 216 units in Sep but up from 189 units 12 months ago. Financing share was 69.7% a drop from around the normal level of 75-80%.

Heavy trucks registrations recorded 129 units in Oct slightly down from 137 units in Sep and also down from 156 units 12 months ago. Financing share was 84.5%.

Bus registrations recorded 180 units in Oct down from 239 units in Sep and significantly down from 548 units 12 months ago. Financing share was relatively constant at 92.2%.

Commenting on vehicle registrations, Murtaza Jafferjee, head of JB Securities said that CBSL gave a directive that came into effect from 15 Sept placing a 70% LTV cap on vehicle financing, on 29 Oct they communicated that the rule would only come into effect from 1 Dec.

“My understanding is that CBSL gave time for finance companies to reduce their stock of repossessed vehicles. It is evident that the LTV rule has had a major impact on 3-wheelers where volumes dropped from around 12,000 to 8,000 and mini trucks (Tata Batta) where volumes dropped from around 1,500 units to 1,000,” he said.

“In other categories there is also a drop but one might have to wait a few more months to see a clearer trend.”

Jafferjee said his preference was to have a free market operate where ever possible but sometimes regulatory intervention is necessary when the market does not self-correct especially when there are externalities like pollution and traffic that are not priced in to the usage cost of a vehicle.

“Ideally we should have carbon taxes via taxation on petrol and diesel (although the taxation on petrol is around Rs 65 there is an under recovery of Rs 25-30 due to the non-implementation of the fuel pricing formula and diesel is only taxed at Rs 15 per litre although it is more polluting) and we don’t have road usage charges in peak times and in congested parts of the city.”

In this case CBSL intervention was more to do with reducing pressure on the trade account rather than correcting for externalities.

“I would have preferred if CBSL did not change its original LTV directive for it sends the wrong message about policy stability but the optimist in me sees Sri Lanka as yet a work in progress thus one would have to live with it.”

Custom valuation of vehicles – the customs department has been complaining for some time that vehicle importers were under invoicing thereby under paying their dues. At a previous budget an attempt was made to remedy this by placing a 15% markup on the commercial invoice value but importers responded by increase the degree of under invoicing.

The customs issued a circular specifying that for vehicle LCs opened on or after 18 Oct the valuation on which duties will be charged would be based on values determined by them, below is its impact on some popular models.

 

Old Method New Method
CIF Value with 15% mark-up Total taxes Custom Value with 15% mark-up Total taxes Increase in taxes
Honda Fit – 2014 model 2,100,000 1,680,000 2,650,000 2,120,000 440,000
Toyota Prius – 2013 3,300,000 2,640,000 4,650,000 3,720,000 1,080,000
Toyota Aqua – 2013 2,250,000 1,800,000 3,250,000 2,600,000 800,000

 

Taxation on vehicles is via a para tariff in the form of an excise duty which is not under the ambit of the country’s commitment under the World Trade Organisation agreement. Its most likely that demand will drop dramatically due lower affordability emanating from the depreciation of the currency, higher interest rates, lower LTVs and higher duties – tax revenues would also drop significantly requiring the treasury to rethink its strategy.

Another indicator of dropping demand is the black market rate for the rupee – the under invoiced value is remitted through the black market; the spread is now compressing indicative of falling demand, on the flip side we may see a pickup in remittances through the legal channel.

Year of manufacture – depreciation tables whereby the duties were lower for used vehicles have been done away with in the last budget. Most of the preowned vehicles imported into Sri Lanka are now less than 2 years old, see table below for Oct registrations.

 

<2010 2011 2012 2013 2014 2015 Total
Vans Toyota 36 45 68 35 35 243 462
Suzuki 6 61 67 70 150 13 367
<2010 2011 2012 2013 2014 2015 Total
Hybrid Car 3 2 293 585 1527 1123 3533
SUV 0 0 0 17 75 299 391