John Myers Jr, Senior Reporter

Demand for new and used cars has hit a slump, manifested in falling applications for motor vehicle import licences.

The Trade Board Limited, the agency of government responsible for issuing auto-import permits, shows an 18 per cent decline in requests up to October, compared with the same period last year.

"There has been a significant reduction in demand as a result of the prevailing economic conditions," said Melvin Smith, head of the Trade Board.

Kent LaCroix, president of the Automobile Dealers' Association (ADA), is projecting a 15 per cent drop in new-car sales this year.

Some 7,500 new vehicles were sold last year.

"It is the economic situation," he said in reference to what has caused the decline, but not entirely.

"Changes to the import regime may have, in fact, contributed to some of it, but generally speaking, it is the economic situation," LaCroix told Sunday Business.

The policy changes announced at the top of the fiscal year imposed a special consumption tax requiring importers to pay higher fees for vehicles with bigger or more powerful engines - the higher the cc rating, the larger the import duty.

As for the used-vehicles sector, which is the more dominant side of the market when measured by volume sales, that business is also said to be in decline.

Import policy

The motor vehicle import policy "has affected it, along with the whole global economic downturn and the spiralling local exchange rate, (as well as) the yen revaluing against the US dollar," said Kenneth Shaw, president of the Used-Car Dealers' Association.

The performance of the yen would be important to the trade since the flow of used-car imports originates substantially from Japan.

Still, LaCroix said, the impact has been greatest among luxury-vehicle sales.

"That's the worst affected of the entire market. We are holding vehicles that people had deposited on and they can't pay for it," he said.

Luxury brands such as Mercedes Benz, BMW, Audi, Range Rover, Jaguar, Volvo, Cadillac and Hummer are all represented on the island.

According to the figures supplied by the Trade Board, the number of import permits issued nose-dived in the months following the implementation of the changes to the import policy, with the biggest drop in licence approvals occurring in September, three months after the regulations took effect.

Licences issued

The Trade Board issued 1,222 licences in June compared with 2,261 last year - down 46 per cent; 1,773 licences in July compared with 2,418 for the same time last year - down 27 per cent; 951 in August compared with 1,838 for the 2007 period - down 48 per cent; and, 1,076 in September compared with 2,177 - a 51 per cent decline.

For the 12 months of 2007, total applications reached 27,288.

But based on the trend, it appears that the year-end figures will come out behind last year's, even if the number of registrations for the remaining two months of this year should be equal to the 2,495 and 2,212 done in November and December of last year.

For the 10 months to October, there were 18,513 import applications.

Annualised, the sector is on track for more than 22,000 applications, but that is about 5,000 fewer import permits than a year ago.

The market has also been hit by affordability. Cars are increasingly more expensive, with both Shaw and LaCroix pointing to the revaluation of the Japanese yen against the US dollar as the reason.

"The yen has been moving dramatically over the last six months," said ADA president LaCroix.

"And that has impacted heavily, in terms of the prices, because the pricing, therefore, goes up and when the vehicle arrives here, that is converted to US dollars, and depending on where the yen is, you get a double whammy."

Hunting deals

LaCroix said dealers have been hunting for deals from the auto companies, who are their suppliers, to bring down the showroom cost of vehicles here.

"We will have to look and see whether there are any deals because this is a worldwide thing. So if any of the manufacturers physically have vehicles that they haven't been able to sell, they may be able to sell them at lower rates. And if we can get these lower rates, maybe we would be able to do certain things with the vehicles when they come here," he said.

But whether that plan is put into operation is also dependent, he suggested, on whether customs recognises the discounted value of the vehicles in factoring the duty owed on their arrival here.

There have been reports, he said, that the Customs Department is unwilling to go that route.

In the meantime, the ADA president said dealers would be cutting back on inventory to reduce overhead costs. "I think it will get worse before it gets better," LaCroix said.

Added Shaw: "At the moment, it is just a matter of wait and see what's going on. It looks gloomy, but we are just hanging in there."

john.myers@gleanerjm.com