Industry Seeks Tax Break for Irish New-Car Buyers

The Irish auto industry wants the government to give motorists a tax break when they trade in an older vehicle for a new model.

The Society of the Irish Motor Industry says cutting €2,000 ($2,653) from the vehicle-registration tax on the purchase of a new car where the trade-in is at least six years old would create 2,200 jobs and generate €129 million ($171.1 million) for the government.

Without the proposed swappage plan, it says, tax revenues will not return to previous levels and new-car sales will not approach 100,000 units for years.

Many consumers have not bought new cars since 2007 or earlier, and the cost of replacing a 7- to 8-year-old automobile with a new model is not achievable. Even a return of consumer confidence and increased domestic spending is not likely to significantly increase new-car deliveries, as the cost of change will remain prohibitive for most buyers, SIMI says.

Auto industry employment and tax revenues from new-car sales are unlikely to return to reasonable levels anytime soon without some type of support, the organization says.

It argues its proposed swappage plan could be even more beneficial than an earlier, similar scheme that provided tax breaks on new-vehicle purchases when the old vehicle was taken off the road.

SIMI says the former plan provided a one-off boost to new-car sales and to government tax revenues, but because there were no trade-ins it had little ongoing impact on new-car sales in following years.

Swappage is focused on trade-ins, which provide new job opportunities and make car buyers more likely to re-enter a normalized new-vehicle change cycle.

SIMI estimates 17,000 cars would be sold through the scheme, reducing carbon-dioxide emissions by 12,125 tons (11,500 t) a year.

The average car on the road today is 8.7 years old. Some 61% of trade-ins involve the sale of new cars and 70% are under five years old.

“Similar to scrappage but much more beneficial to the Exchequer, swappage has the potential to deliver an even greater benefit but at no greater risk to tax revenues, the industry or the state,” SIMI Director General Alan Nolan says.

“If swappage is introduced next year, it could help new-car sales reach 90,000 (units). There would also be an increase in used-car sales and servicing due to the cycle of business generated by the resale of trade-ins, and local jobs and businesses in 400 towns across the country would be protected.”

The costs of the tax deduction would be more than offset by the rising revenue from increased new-car deliveries.

SIMI says the industry in 2007 generated €2 billion ($2.6 billion) in taxes on sales of 186,000 new cars, but this year less than €600 million ($795.8 million) will be collected from just 73,000 units.

Since 2007, 12,800 automotive jobs have been lost, with the number employed in the sector down to 36,800 in the last quarter of this year. In the past five years, 150 garages have closed and the industry is at 50% of normal levels. New-car sales have fallen 57% in the timeframe.

SIMI says between 1996 and 2008, the average car dealer in Ireland sold 300 new and 400 used cars a year. Between 2009 and this year, deliveries were down to 150 new and 150 used cars. With no improvement, it says, another 250 businesses could close and 5,000 jobs could be lost.

SIMI President Paul Linders says the Irish auto industry has been operating at half of normal sustainable levels for the past five years.

“The motor industry is facing a fundamental structural problem, where traditional new-car buyers are left out of the market due to the cost-to-change gap,” Linders says. “We need action now and if no incentive is introduced, we’ll see many more dealers go out of businesses and the local employment they provide will be gone.