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Fri, 25 April 2014 14:07:29
Sri Lanka Mitsubishi agent boosts profits with tax-slashed SUVs
14 Jul, 2008 17:21:04
July 14, 2008 (LBO) – A Sri Lankan government scheme that allowed top officials to buy tax-slashed cars helped United Motors, agents for Mitsubishi vehicles, accelerate sales and profits to a record high, the company told shareholders.
The permit scheme had reactivated the Sports Utility Vehicle (SUV) market with the gas-guzzling 2.5 litre Mitsubishi Montero Sport being the machine in most demand among senior government officials, the firm's annual report reveals.

The Mitsubishi Montero Sport with a fuel economy less than ten kilometers per litre, falling under the fuel inefficient segment, is also a favourite of politicians. Politcians get completely tax-free cars and ministers get a virtually unlimited fuel allowance from tax-payer money.

But they themselves pay no tax on their salaries or allowances.

The government vehicle permit scheme helped United Motors group to achieve its highest sales volume in the passenger vehicle segment and a net profit of 519.7 million rupees in the year ended March 2008, up 21.2 percent.

The group's turnover from motor vehicle sales grew 61 percent to 5,106 million rupees with motor cycle sales going up 14 percent to 1,140.6 million, the annual report said.

"Under the government vehicle permit scheme, we achieved the highest sales volume in our history, making up for the slump in demand in the passenger vehicle segment," Ranjith Fernando, chairman United Motors Lanka (UML) told shareholders in the annual report.

In the 2007/08 year, UML had sold a total of 2,574 vehicles, up 77 percent from the year before. Around 1,120 vehicles were sold on government permits.

"We secured a large share of the high end permits due to the offer of a SUV which was the only Japanese SUV offered in this permit category," chief executive C Yatawara said.

"This generated a strong influx of customers…"

However, this is a one-off gain as the government policy of restricting any new import permits issued to locally assembled vehicles makes UML no longer eligible to offer vehicles under the scheme.

The company said it is concerned about the policy of promoting vehicle assembly in the island and is itself in talks with its own principals to venture into local vehicle assembly, according to Fernando.

For the year ended March 2008, the Registrar of Motor Vehicles (RMV) had registered 25,932 brand new vehicles of which 6.9 percent or 1,789 units were from UML's Mitsubishi division.

"High levels of taxation continue to be an ongoing challenge…heavy taxation can become counter-productive and in fact reduce government revenue, as prices of vehicles reach un-affordable levels for most customer segments, depressing total demand."

UML said it hopes the government will improve the quality and capacity of the road network in the island to cope with the growing volume of traffic and to ease congestion.

The company also started selling smaller vehicles, while sales of trucks, in which it has 56 percent share of the market for new Japanese trucks, grew by 70 percent.

"The high finance costs were a serious challenge for the company in 2007…" Fernando also said noting that there had been a 61.4 percent increase in group finance expenses to 682.4 million rupees.

UML last year started to phase out its vehicle hiring business, Orient Motor Company Limited, and to downsize the tractor business due to lower performance.

"Depreciation and finance costs of the vehicle fleet were relatively high and have not matched up to hire rentals and there have been no new hires during the year," Yatawara said.

The tractor business was downsized due to high finance costs resulting from difficulties in debt recovery and the escalating operating costs, Yatawara also said.

During the year, the group earnings per share increased to 15.70 rupees from 12.44 while total assets increased 14 percent to 7,700 million rupees.

"While focusing on developing our core business of selling Mitsubishi vehicles and the businesses of our subsidiaries, we will continue to exploit new opportunities and venture into new brands and product segments…" Yatawara said.

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