Cars crossing the Irish Sea from mainland GB

BREXIT CATASTROPHIC FOR USED CAR TRADE IN NI

As Brexit looms, used car dealers across Northern Ireland are bracing themselves for what they describe as “devastating trade talks.”

This is as a result of the new VAT margin scheme which has been proposed for the used car trade in NI which will see both consumers and dealers paying more for used cars.

The proposed scheme suggests that car dealers buying cars from mainland GB to NI will have to pay 20 per cent VAT on the full price they paid for the car. Currently, dealers only pay 20 per cent on the profit they make on a car.

Originally, before Brexit talks were finalised, Northern Ireland car dealers were reassured that there would be no extra VAT placed on car purchases from the mainland.

If the new scheme comes into action, their profit margins will dramatically decrease making it almost impossible to make a profit. As a result, prices would have to increase on cars across NI which would see consumers having to pay significantly more for a car not worth the value they are paying.

If dealerships did not increase their prices, it would leave an unworkable relationship on imports between mainland GB and NI as NI dealerships simply would not be competitive.

Gary Fulton, Sales Manager at AG News Audi in Belfast explains, “The price you see on a car is the price you pay because it’s already competitive. If it wasn’t competitive, you wouldn’t get the enquiry. You only make the margin; you’re only making what you need to make.”

“So, if you take a small used car dealer with this new proposed scheme and the VAT added on, it won’t take much to tip them over the edge if they’re not competitive with the big boys, they will be squeezed out unfortunately, that’s always the way. There will be a devastating impact on the used car industry in NI as there are not enough cars in NI to meet the demand of the market. The new scheme simply won’t work. The realistic challenge is to fight the proposed scheme.”

If the new margin scheme is finalised in the Brexit negotiations, small used car dealerships across NI will face heavy loss and closure.

Peter McDermott, Managing Director of Pat Kirk Ltd. said, “We hope that the UK government and the EU get the matter sorted and allow us to continue to trade as we are currently trading. We are awaiting news daily. MLA’s have raised the issue to Stormont as these are real hard issues that need to be dealt with. A lot of politicians have not seen just how much this will affect the car trade in NI, they are not businesspeople.”

“It is so important for used car dealerships that they find a better agreement,” he continued. “The margin scheme affects the entirety of their business. It would be absolutely devastating, the larger used and new car dealerships will be affected, but it will not be as detrimental as the dealerships solely selling used cars. It is not a case that they will have to take 20 per cent more on these cars, they won’t do it as the margin is not there.”

An average car dealership will make an average gross profit on a car of anywhere between six to eight per cent. Their net profit will be around two to three per cent. As it stands there is no way to absorb the extra 20 per cent VAT as dealers are only making a maximum of eight per cent gross profit.

The lack of information continues to anger dealerships across NI as so much uncertainty remains with only two weeks until the UK is scheduled to leave the EU on 31st of December. The UK continues trade talks discussing the UK’s extraction from the EU and the NI protocol.

Peter McDermott describes the NI motor trade as a “casualty” within the Brexit trade talks as NI is now being treated as separate country from the UK, “The way we understand it, for now, is that any vehicles coming from the mainland GB are going to be exported to NI because NI is now being treated as another country in terms of trade in the NI protocol. We would never have used the term exported before when we were buying in cars from the UK mainland.”

“The NI protocol is an EU Directive, and it is my understanding that they have proposed the margin scheme not the UK. There are areas of this protocol that are unsatisfactory, not just for the motor industry, but many

others too. NI is now seen to have a foot in the UK who are removed from the EU and the ROI which are in the EU. The EU are trying to prevent NI being used as a gateway into the EU for their goods.”

However, there is no car market from NI to Europe as the steering wheel is on the wrong side of the car. The EU would not benefit from the new margin scheme and would simply lose revenue from the Republic of Ireland.

There is also no benefit to the ROI government to stop the gateway as they continue to receive the revenue and registration tax on each car moving from NI to the ROI which can be upwards of €5000 per car.

A vast number of NI motor dealers, large and small, have raised the issues of the new proposed margin scheme with the UK government.

Terrance Donnelly, Executive Chairman of the biggest car franchise in NI, the Donnelly Group, said, “The new scheme seems unworkable. The whole deal seems like an oversight. We have requested the changes to be made but the EU must agree to it. The protocol document can’t be changed but it’s deemed to be a work around.”

“The UK has already put an appeal to Europe but there’s so many changes coming to Europe with no deal agreed so I don’t know where the car trade lands in their list of priorities,” he continued. “You’d imagine that if an overall deal gets agreed, this will just wash up as it is of no benefit to Europe to hold [NI] back. Brexit will be disruptive, and the full implications remain unknown, but we will get there.”