The Peter Bacon Report

-Chris-

Inspired by this thread I thought it might be worthwhile actually looking at the Bacon report and it's findings and seeing what everyone thought of them.


I've attached the SIMI's sinopsis of the report. Here are the findings:

1. The long term economic model used in the report did not predict the market collapse in 2009.

2. This model predicted a fall of 9.2% while the actual decline will approximate 65%. The decline in the market is signifcantly greater than in other European markets.

3. There are four main reasons for the collapse, a signifcant increase in transaction price caused by a collapse in used car values which was in turn caused by the devaluation in sterling and the VRT changes in July 2008, the inability of the retail sector to supply cars to the car rental sector, the credit crunch, and consumer sentiment.

4. The new car market will remain at 2009 levels in 2010 and 2011 in the absence of any stimulus package.

5. The industry did not oversell the market during the boom years.

6. The VRT change in July 2008 happened at the worst possible time for the industry.

7. The prices of used cars fell on average by €5,000 or 22% in the year to February 2009.

8. The transaction prices for new cars increased by 31.6% in early 2009.

9. The banks curtailed funding to the industry in late 2008 resulting in the industry not having sufcient funds to enable normal trading and the consequent inability to accept trade ins in early 2009.

10. Operating margins in the industry are very low. The average return on turnover ranges from 1% to 1.5%.

11. There was no profteering by the industry during the boom years.

12. Pre tax prices for cars in Ireland are at the European average and mirror UK pre tax prices.

13. The devaluation in sterling from October 2008 resulted in a signifcant disparity in prices between Ireland and the UK in early 2009.

14. Post taxes prices for cars in Ireland are the second highest in the EU due mainly to VRT. Post tax retail prices in Ireland are €2,400 above the European average.

15. The tax take from cars in Ireland is the highest in the EU.

16. UK post tax prices are among the lowest in Europe.

17. VRT places the industry in Ireland at a competitive disadvantage.

18. VRT is a debilitating tax and there are signifcant costs to the economy and particularly the consumer as a result of this tax.

19. VRT acts as a barrier of entry into the Irish market.

20. Cars are the only commodity taxed for carbon emissions while cars account for only 10% of the greenhouse gas emissions in Ireland. Why cars and not the other 90%?

21. The large investment in premises by the industry in recent times resulted from the industry’s obligations to comply with European legislation.

22. There is no evidence to suggest that the problems in the sector are as a result of excessive investment in premises.

23. The major cost in the industry is payroll and this cost increased signifcantly in 2007 and 2008.

24. In the absence of any stimulus package for 2010, labour costs will have to be reduced by 25% to enable the industry to survive.

25. The seasonality of sales in Ireland is signifcantly out of line with the rest of Europe.

26. This seasonality (caused by putting the year of frst registration on the registration plate) places enormous risk in the industry through excessive working capital requirements (estimated at €278m) and through the depreciation risk in used cars.

27. The banks have curtailed the availability of working capital in the industry therefore limiting the ability of the industry to cater for the seasonality of demand created by the registration plate.

28. The car rental sector and the retail sector are inextricably linked. The car rental sector will only be able to meet tourism demands for short term car hire by the retail sector supplying cars to the rental sector. The retail sector was unable to meet this demand in 2009 and will be unable to meet the demand in 2010.

29. The changes to the road tax system introduced in 2008 have created an apartheid road tax system resulting in cars with the same CO2 emissions being taxed at diferent rates.

I expect points 5 and 11 will be of particular interest/comment, but let's not get too hung up on them.

Also, when discussing VRT, this isn't a thread about whether it's an illegal tax. We've been around that one before.

Recommendations

1. Introduce a revenue-generating scrappage scheme in December’s budget.
This scheme will generate net revenue for the exchequer in 2010, stimulate
the industry, save jobs and reduce the pressure for signifcant pay cuts.

2. Abolish VRT on a phased basis following detailed consultation
on the abolition method used with the Industry.

3. Introduce a VRT refund system for cars exported from the country.

4. Change the registration plate removing or de emphasing
the year of frst registration from the plate.

5. Rebalance the road tax system.

6. Changes to the VRT system as it afects car rental companies
should be delayed for at least two years.

So, in essence, is the report of any use? Which of its recommendations should be followed and which are red herrings?
Has he overlooked anything?

If you were a motor dealer, what would you think of these recommendations? Would it affect the way you operate?

JHMEG

-Chris- wrote: »

I expect points 5 and 11 will be of particular interest/comment, but let's not get too hung up on them.

Property developers would say the same.

They did oversell. We're more BMWs per capita than Germany, and we make nothing, produce nothing, have no natural resources...

Big Nasty

While I agree that the Motor Trade is in dire straits there are other industries in worse shape, i.e: the Property Market. It is not fair to bail out the Motor Trade to this extent and not other industries.

The scrappage scheme would be a short term fix and once the term expires sales will become worse than they are now.

Phasing out the VRT slowly I agree with.

The reg plate thing has made a big difference. If you drive up to the Golf Club in your 96 7series or your 02 7series there is an obvious difference - same goes for sales. That said it's too late to change and a turn around would be seen as a step back.

While it's a killer if you're a luxo-barge fan like me the tax system is progressive so fair enough.

The best and most effective way to help all industries and the economy as a whole recover would be to reduce VAT to say 15%. This will loose revenue for the Govt on current sales levels but if sales as a whole increase the revenue will at least break even if not increase.

Seth Brundle

Thanks for putting that up Chris. I'll print off the report and read through it later.
Unfortunately, to me, I know this will be like reading a report from BNFL claiming that Sellafield is safe!

Mr Benevolent

kbannon wrote: »

Thanks for putting that up Chris. I'll print off the report and read through it later.
Unfortunately, to me, I know this will be like reading a report from BNFL claiming that Sellafield is safe!

+1. Sellafield has been decommissioned for years though

pburns

I haven't time to read the report atm but I did watch the Frontline programme the other night. You'd have to have sympathy for the plight of those in the trade losing jobs but unfortunely it is a bubble that needs to be left to market forces.

As a country with no real motor industry I don't think we should be subsidising or promoting car purchase. (We have a 'motor trade', not a 'car industry'. The fact this term is thrown around willy-nilly shoes just how deluded and myopic motor retailers are). It's like having a dozen estate agents in a mid-sized midlands town. There needs to be a cull to sustainable levels...

WacoKid

re. road tax. Put it into the price of petrol so the more you drive the more you pay, thats progressive.

Cookie_Monster

28. The car rental sector and the retail sector are inextricably linked. The car rental sector will only be able to meet tourism demands for short term car hire by the retail sector supplying cars to the rental sector. The retail sector was unable to meet this demand in 2009 and will be unable to meet the demand in 2010.

I don't get this. Why were they not able to supply (sell) enough cars? Surely they would be jumping at the chance of such a large sale?

24. In the absence of any stimulus package for 2010, labour costs will have to be reduced by 25% to enable the industry to survive.

At least this will mean (slightly) more realistic labour rates

R.O.R

Cookie_Monster wrote: »

I don't get this. Why were they not able to supply (sell) enough cars? Surely they would be jumping at the chance of such a large sale?

The manufactuers / dealers sell the rental cars to rental companies, with a guaranteed purchase figure later in the year. Earlier this year the suppliers were either unable (due to finance restrictions) or unwilling ('cos no one knew what the hell anything would be worth) to sign the buybacks. No rental companies could afford to buy the cars straight out without a gauranteed return.

smash

"2. Abolish VRT on a phased basis following detailed consultation
on the abolition method used with the Industry.

6. Changes to the VRT system as it afects car rental companies
should be delayed for at least two years."

So he's saying lets change it, but lets do it in 2 years time... Useless!

R.O.R

steve06 wrote: »

"2. Abolish VRT on a phased basis following detailed consultation
on the abolition method used with the Industry.

6. Changes to the VRT system as it afects car rental companies
should be delayed for at least two years."

So he's saying lets change it, but lets do it in 2 years time... Useless!

VRT applies differently to short term rental cars. Not sure of the ins and outs, but I think it's deferred. That's why you have to change rental cars every 28 days.

Marlow

15. The tax take from cars in Ireland is the highest in the EU.

15. is downright wrong, and if one of statements is wrong, can the rest of the report be trusted ?

Denmark has 200% VRT (50% on commercials), 25% VAT and similar petrol/diesel prices to here. Actually Ireland used to be the cheapest country for petrol/diesel, but isn't anymore.

/M

TomMc

MCMLXXV wrote: »

The best and most effective way to help all industries and the economy as a whole recover would be to reduce VAT to say 15%. This will loose revenue for the Govt on current sales levels but if sales as a whole increase the revenue will at least break even if not increase.

As I posted on another thread, dropping the VAT rate to 15% makes things worse. You get 6.5% less on all VAT turnover (not just the increased sales) And gain 15% on the incremental increase over and above the norm. While it gives the public an extra 6.5% spending power in their pockets, the state ends up collecting much less VAT overall and so cuts in public spending or increases in taxes will be the consequences. And who pays that in the end ? the general public do.

i.e.

EUR100 sale collects 17.70 VAT @ 21.5%

EUR100 sale collects 13.04 @ 15%

EUR135.00 sale collects near the original 17.60 @ 15%

So consumption has to increase 35% to break even, yet people only have 6.5% more money in their pocket in real terms to do so. It doesn't stack up as it isn't incentive enough for people to break into any savings as well.

McSpud

3. There are four main reasons for the collapse, a signifcant increase in transaction price caused by a collapse in used car values which was in turn caused by the devaluation in sterling and the VRT changes in July 2008, the inability of the retail sector to supply cars to the car rental sector, the credit crunch, and consumer sentiment.

I stopped reading after that.

The single biggest factor in the retail market collapse is Recession! After a house the next biggest purchase most people make is a car. When people lose their jobs or fear they will lose their jobs they don't spend their savings or borrow for a new car.

Big Nasty

TomMc wrote: »

EUR135.00 sale collects near the original 17.60 @ 15%

So consumption has to increase 35% to break even, yet people only have 6.5% more money in their pocket in real terms to do so. It doesn't stack up as it isn't incentive enough for people to break into any savings as well.

It does stack up. If all goods and services are 6.5% (or whatever) cheaper that encourages more people to spend and less people to shop across the border, be it for cars, groceries, electrical goods, etc. Everytime someone chooses not to cross a border and shop in ROI it keeps someone in a job. That someone then has say 30K a year to spend in the Irish economy and the 15% VAT will be charged on goods he purchases that he other wise wouldn't have been able to purchase. Trend continues, more people stay in jobs and have more money to spend, more revenue is raised for govt, consumer confidence grows, bank start lending again, etc, etc.

The other alternative of leaving the VAT at 21.5% means products sold in this country remain completely uncompetitive, people cross borders to shop or do not shop at all, people loose jobs, etc. Not only does that one person not earn his 30K but he costs 12k in welfare etc.

Half a loaf is better than no loaf at all!

TomMc

We are going off in a tangent MCMLXXV. The reasons people are going North are not down to a 6.5% saving on VAT (which would merely meet travelling expenses) but because Sterling is about 30%-35% lower than we were use too, overheads are lower and so this also reflects favourably on GB Zone prices. Where goods cost say GBP100 in the North, we were use to paying EUR150 for them here and still are or close enough in some cases, with all the various factors taken into account. Big UK stores in ROI not passing on all the currency savings to the extent they should in terms of product prices.

People can buy the same GBP100 worth of spending power for far less now, like EUR110. A few percent in VAT is of minor importance in the grand scheme of things. A mere 6.5% reduction in VAT doesn't explain or tally with a 50-100% saving in actual shop prices.

Dr Kamikazi

What WILL happen however is that petrol and diesel go up. There will be a carbon tax.
Road tax will possibly go up. VAT and VRT will remain unchanged (and will do do for the foreseeable future). Your income tax will go up, any kind of benefit paid out by the state will be cut or abolished and any kind of service will be cut or abolished.
B ut what really drives me INSANE with rage is those brainless, dickless, spineless, turncoats from FF Junior (sorry, Greens) telling us that all this is REVENUE NEUTRAL!
WTF? I'm paying more and more while getting less and less, how can this be revenue neutral.
Anyway, a thousand bucks and my right nut I'm right on the money.
Because for some funny reason, and as the only place ON THE PLANET the Irish seem to buckle the universally accepted system of supply and demand and turn it on it's head.
Demand is going down, so you must raise your prices. And ignore the entire world telling you that's wrong.
Because, as the auld chestnut goes, Ireland is different.
Hasn't that always been the lame excuse to screw us?

Big Nasty

TomMc wrote: »

We are going off in a tangent MCMLXXV. The reasons people are going North are not down to a 6.5% saving on VAT (which would merely meet travelling expenses) but because Sterling is about 30%-35% lower than we were use too, overheads are lower and so this also reflects favourably on GB Zone prices. Where goods cost say GBP100 in the North, we were use to paying EUR150 for them here and still are or close enough in some cases, with all the various factors taken into account. Big UK stores in ROI not passing on all the currency savings to the extent they should in terms of product prices.

People can buy the same GBP100 worth of spending power for far less now, like EUR110. A few percent in VAT is of minor importance in the grand scheme of things. A mere 6.5% reduction in VAT doesn't explain or tally with a 50-100% saving in actual shop prices.

Right so Tom, take driving from South Dublin to Newry to fill your car with goods. You've got 2 tolls each way, fuel and time. Yes you still save a few quid but when you take the rest in to consideration that's all it really is - a few quid. Reducing the VAT by 6.5% will almost bring you to a breakeven point so negates the necessity for travelling up for your shopping. Not really applicable to the motor industry but from a general shopping point of view it makes sense. If this money remain in the country it is obviously good for the economy and that IMO is good as it will help keep people in jobs and give them more money to spend on luxuries.

TomMc

MCMLXXV wrote: »

Right so Tom, take driving from South Dublin to Newry to fill your car with goods. You've got 2 tolls each way, fuel and time. Yes you still save a few quid but when you take the rest in to consideration that's all it really is - a few quid. Reducing the VAT by 6.5% will almost bring you to a breakeven point so negates the necessity for travelling up for your shopping. Not really applicable to the motor industry but from a general shopping point of view it makes sense. If this money remain in the country it is obviously good for the economy and that IMO is good as it will help keep people in jobs and give them more money to spend on luxuries.

You are right that people should shop here for the geater good, but wrong if you think the exodus is primarily down to VAT. Unfortunately there are just too many goods and services with large price variations between the North and South. If you want to leave out the motoring side of things like servicing and tyres (huge savings), take something like electrical goods or any consumer good sold in say Argos or the like, if its only costing EUR20-30 for travelling expenses, you can save EUR100 at least for every EUR250-300 spent. Yes I find it a bit crass people going primarily to save on booze, but if combined with other shopping, am realistic enough to accept that people buy what they buy and go where they get the best value for money. You cannot expect joe public to be idealistic and patriotic, if they are struggling to make ends meet.

I have tens of thousands of Euro tied up in stock that is very hard to sell in the current climate, would much prefer it was in cash reserves. May have to shift it at cost price or a loss, rather than not at all.

Ultimately, there is no quick fix for the motor trade or the Irish economy as a whole. Saving unsustainable jobs in the short term with incentive schemes is just damage limitation. Lowering the cost base and creating new sustainable jobs across the board is the only solution. Real economic growth and consumer spending only thrives when there is low unemployent levels, where the vast majority of the public have regular healthy incomes. In the meantime the government will have to be much more prudent with taxpayers money and get far more value in terms of state expenditure.

Big Nasty

TomMc wrote: »

Lowering the cost base and creating new sustainable jobs across the board is the only solution. Real economic growth and consumer spending only thrives when there is low unemployent levels, where the vast majority of the public have regular healthy incomes. In the meantime the government will have to be much more prudent with taxpayers money and get far more value in terms of state expenditure.

Correct and right and this is where a reduction in VAT will come in. I am not for one minute saying that a reduction in VAT is the be all and end all but it will without a shadow of doubt stimulate a marginal increase in sales across the board keeping more people in jobs.

As they say in Asda - 'Every Little Helps'!

Marlow

TomMc wrote: »

Unfortunately there are just too many goods and services with large price variations between the North and South. If you want to leave out the motoring side of things like servicing and tyres (huge savings)

As such, this is correct. Irish prices are still inflated and the dealerships in this case don't get it.

I quoted some spareparts in Galway, 2500 EUR. Same parts from a dealership in the North, send with a Courier down south: 1050 EUR (950£).

This applies for a lot of stuff and has nothing with taxation to do. The points, that the dealerships didn't oversell during the boom are nonsense. They might not have oversold, but they certainly jacked the prices up beyond belief.

Changing the VAT won't change a thing there.

/M