Why is the luxury car segment struggling?

With the economy supposedly improving and many businessmen optimistic with our country’s economic outlook, it is surprising that the luxury car segment has taken a double-digit slide. Worth mentioning also is the forecast of the Chamber of Automotive Manufacturers in the Philippines Inc. for overall car sales to increase by roughly 8 percent by yearend, including those of manufacturer sales that are not Campi members.

I asked around, interviewed heads and executives of various luxury brands (none of whom wanted to be quoted for fear of the expected ramifications), and they’re all blaming the Bureau of Internal Revenue.

The luxury car market accounts for roughly 5-7 percent of the total car market. This would be your usual luxury brands from Audi, BMW, Ferrari, Jaguar, Lamborghini, Lexus, Maserati, Mercedes-Benz, MINI, Porsche, etc. It’s a very small segment, almost insignificant to the overall car market.

There are rumors that a local powerhouse automotive group already plans to bring in Lotus, those small, lithe and wonderful sports cars from Hethel in Norfolk, England, French brand Peugeot is in launching mode and Bentley is also making an appearance in our local shores in the next few months.

However, car marketing 101 tells us that the higher-priced the vehicle SRP is, the higher the overall profit margin and of course absolute profit amount per car is, with far less effort required than, say, selling a single subcompact hatchback or sedan.

It is very lucrative business. More importantly, these companies train and employ thousands of high-skill, high-paying technical jobs. Nowadays, Filipinos are far less concerned about being inconspicuous, preferring to enjoy their hard-earned money by indulging in some four-wheeled fantasy machine.

The moneyed folk are also turning over their business empires and/or estates to the second or even third generation who are less concerned with fitting into a particular model their predecessors had in their days. And with more and more flashy metal arriving in our shores, why is it then that the luxury car market is down?

Wealth and affluence apparently has its privileges, and the requisite price to pay. Since the Aquino administration’s been hot on shoring up the budget deficit, it has been keen to intensify its drive on tax evaders and improving the overall tax collection efficiency targets. And I guess, anyone driving a multimillion-peso vehicle is a prime suspect for being a tax evader.

Even during the Arroyo administration, the norm has been for luxury car buyers to register their expensive exotics in the names of a trusted accomplice, be it a loyal driver, yaya/maid, an office worker/secretary, or a friend living abroad, but while holding onto an open deed of sale signed y the aforementioned registered owner.

So in case the real and actual owner needs to present proof of ownership, he or she will just present the open deed of sale, and while holding in possession the official receipt of said luxury vehicle. These people who are dummy registered owners of said vehicles usually are the so-called NPAs, or those with No Permanent (registered) Addresses.

So it makes it more difficult for the BIR to track these people down, perform the requisite lifestyle check and examine if they are indeed paying the right taxes.

I wonder if every rich person now is a tax evader in the eyes of the BIR.

In all honesty, I actually applaud the BIR’s commitment to improve tax collections and their fight against tax evaders. We need these taxes, to build more and better roads, bridges and other public infrastructure which will improve our local economy, and our way of life. Commissioner Kim Jacinto-Henares has been very good at her job leading the BIR. But my grief is that practically every luxury car brand/manufacturer is, in the words of a car executive, being harassed by the BIR to show them (the BIR) the list of all their clients who bought luxury cars, which will then allow the BIR to go after these owners, in a nutshell.

Isn’t that invasion of privacy? Doesn’t the BIR need specific court orders for something like that?

Guilty or not, nobody wants to be scrutinized by an outside, third-party organization if they are paying their taxes properly. I do not possess the solution myself as to how the BIR and these luxury car brands can help find the balance to their concerns, the BIR’s desire to find potential tax evaders, and the luxury car brands’ desire to keep their customer database confidential.

But all I know is that it is hurting a segment of the automotive industry, and keeping nice cars off our roads.