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Friday, 4 April 2014

Government interferes once again in the car industry by changing the tax-rules for environmentally friendly cars. Small and fuel efficient is hot, today. Yesterday’s winner, the Plug-in Hybrid is today’s loser, putting Volvo and Mitsubishi virtually out of business!

Yesterday, the Dutch Association for the Automotive Industry RAI presented its quarterly sales for 2014Q1. As I expected before, the car sales dropped indeed substantially: both Q-o-Q, as well as Y-o-Y.

Here are the pertinent snips of the RAI:

A total of 107,265 cars has been registered during the first quarter of 2014. This is a decline of 7.1% year-on-year (115,423 cars).

During the month March of 2014, a total of 29,530 new cars has been registered. This is 17 percent less than in March 2013, when 35,562 cars had been registered.

Although I personally don’t consider a drop of 7% in sales to be ‘slightly’, it is a smaller drop than I anticipated in the first days of 2014.

Nevertheless, one should not forget that 2013 had already been a very bad year for the car industry and that 2013Q1 had showed a steep drop of sales in comparison with 2012Q1. Had 2013Q4 not been so relatively successful, 2013 would have been one of the worst years in the (not so) recent history of car sales. And 2014 promises to be even worse…

The declined year-on-year and quarter-on-quarter sales in 2014Q1 show that the car industry in The Netherlands is yet very ill, as a consequence of the almost ubiquitous consumer strike among the lower and middle class incomes and the various austerity measures within almost all small and medium enterprises. Although the Dutch economy currently shows some cautious growth, this is definitely not the case for consumption in general and car sales in particular.

And one should also consider that Q1 is normally the best quarter of the year for car sales:
  • People rather drive in a Q1 car – which will be of the current year for four quarters– than in a Q4 car, as it will soon become last year’s car;
  • And Q1 is also the quarter in which the fleet management departments within companies receive new annual budgets. 

The following chart shows the car sales from 2013Q1 until (and including) 2014Q1: 

Dutch car sales in the period 2013Q1 - 2014Q1
Data courtesy of: RAI
Chart created by: Ernst's Economy for You
Click to enlarge
If 2014 follows the trend of 2013, car sales in Q2 and Q3 will be even much worse than 2014Q1 has been. It might be that car sales in these quarters will not get north of 85,000 cars.

The following table shows the total car sales for all brands that sold more than 100 cars in 2013Q4:

Dutch car sales in the period 2013Q1 - 2014Q1
Data courtesy of: RAI
Click to enlarge
What is much more interesting than looking at the sheer numbers of car sales within the period 2013Q1 – 2014Q1, is looking at the enormous shifts in sales between brands and models, which have taken place within this period. This is something that I already predicted at the beginning of this year (see the aforementioned link):

What all these ‘losing’ brands have in common, however, is that the conglomerates behind it failed to step in at the trend for environmentally friendly cars in time. The fiscal pressure from the Dutch government on not-environmentally friendly cars and especially the very favourable tax-breaks for electric cars and plug in-hybrids have radically changed the automotive landscape in 2013.

Nevertheless, those tax-breaks have now largely ended with the deployment of much less favourable regulations on January 1st, 2014. This is the reason that 2013’s winners could easily become 2014’s losers after all: anybody, who thinks that most car-buyers will buy a plug-in hybrid or electrical car for fun, is totally out of his mind. Consequently, expect totally different numbers at the end of 2014.

The following chart shows how right this prediction has been:

Dutch car sales for large brands in the period 2013Q1 - 2014Q1 
Data courtesy of: RAI
Chart created by: Ernst's Economy for You
Click to enlarge
The brands with the most surprising sales increases in 2013Q4 – Toyota, Mitsubishi and Volvo – have all been big losers in 2014Q1.

Especially Mitsubishi, which sold more Outlander Plug-in Hybrids in December 2013, than its total car sales of 2012(!), had in 2014Q1 a Q-o-Q sales drop of about 6,000 cars or 75% (!).

The outrageous sales of Outlanders in 2013Q4 was the result of extremely favourable subsidies and tax regulations. This enabled f.i. entrepreneurs to buy a €45,000 Outlander for no more than a €10,000 net price. Also the 0% annual tax addition for lease drivers did a lot for sales of this model in the last quarter of last year.

Due to the changed tax regulations, which put a halt to the 0% tax addition for lease drivers as of January 1st, the Plug-in Hybrids have become yesterday’s favorite model.  

The extremely fuel efficient cars, however, are today’s ‘love-babies’: this explains the success in 2014Q1 for Kia, Peugeot and Skoda, who all have tiny cars with very tiny, but yet powerful engines.

These car sales data for 2014Q1 and last year prove in my opinion that the government should better not interfere in the car industry – through all kinds of special subsidies and tax breaks – unless they can maintain such tax breaks and subsidies for a long, long time.

Of course it is good when the sales of electrical and / or extremely fuel efficient and environmentally friendly cars are spurred, as these help to reduce the risk of climate change and smog.

Nevertheless, by changing the regulations for environmentally friendly cars so quickly, the Dutch government has put brands like Mitsubishi and Volvo ‘in’ and again ‘out of business’ in a jiffy. 

That should not be the way in which a government operates, in my humble opinion.


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