Spanish Auto Industry Warns Tax Hike Will Backfire

MADRID – Hard times for Spain’s auto industry will continue when the government raises the value-added tax from 18% to 21% in September.

Pressure from the European Commission to slash the public debt has prompted the increase, which will add an average €650 ($783) to the price of a new car.

Sources from ANFAC, the association of auto makers with plants in Spain, say the higher VAT will reduce sales between 16,000 and 20,000 units this year, to about 725,000. That is less than half of the 1.61 million cars sold as recently as 2007, according to WardsAuto data.

The ANFAC sources contend the tax hike will not benefit the Spanish economy because as car demand falls, sales also will decline in the aftermarket, oil, insurance, finance and other automobile-related businesses.

“We forecast that the VAT increase will translate into a 4%-5% additional cut in the total car sales in Spain during 2012,” adds German Lopez, president of ANIACAM, the Spanish association of auto importers.

When the VAT is added to the registration tax, which is based on the level of the car’s carbon-dioxide emissions, the combined tax can reach a maximum of 36%, he says.

The VAT increase will cause further distress for dealers already operating in the red, says Juan A. Sanchez, president of GANVAM, an association of Spanish auto dealers and vendors.

“The price increase derived from the bigger VAT will increase the 40,000 jobs lost in the auto dealers’ networks during the last year, and the 2,500 small dealers and vendors that have been forced to close their business in the same period,” he says.

The industry representatives agree the government could revive the Spanish car market by subsidizing purchases of new cars that would replace older vehicles with higher emissions. But other countries’ so-called scrappage plans no longer are in effect and the EC opposes the schemes, saying they are unaffordable.