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Worry Increases Over SUV Excise Tax Hikes

Automakers paint dark picture of industry’s future


May 23, 2002
Copyright © 2002 CARIBBEAN BUSINESS. All Rights Reserved.

Puerto Rico automakers continue to voice pessimism for the future while they remain in limbo this week on how new excise taxes will be applied to Sport Utility Vehicles (SUVs) and minivans.

"There are still some things that need to be worked out in the language of this bill," said William Wynne, Ford’s district manager for Puerto Rico and the Virgin Islands. "In the language, the top category is being taxed at 40% and, if that’s the case, then I don’t know how many $50,000 Excursions I am going to sell with $20,000 of incremental tax on them."

Under the newly passed legislation, excise taxes on SUVs and minivans were raised so that they would be level with the taxes levied on other automobiles. Industry figures show SUVs and minivans were the popular choices of buyers, accounting for more than 40% of the 120,000 new vehicles sold on the island last year.

Although automakers and retailers now know the new taxes will become a reality, they don’t know exactly when the fees will go into effect or whether they will apply to existing stock.

"At this point, we are trying to do everything we can to prepare for the impending tax increase," said Fred Diaz, Chrysler’s regional manager for Puerto Rico and the Caribbean.

"Based on the information we know, we have been doing some planning and forecasting," he said. "Unfortunately …we are being forced to lower our (sales) forecast 11% for the year. Some of the manufacturers are lowering their forecasts by as much as 20%."

Diaz said SUVs and minivans account for about 73% of Chrysler’s sales in the region. He also said the government would not see the $70 million it anticipated generating from the auto tax to help balance the budget.

"It is disappointing," the Chrysler executive said. "The government is going to end up saying, ‘It sure did backfire on us; we sure did end up making less.’ We will see a dip in sales definitely in June and possibly in July."

The new excise taxes will hike the current taxes on SUVs and minivans from about $400 on less expensive models to more than $12,000 on the costlier ones–with an average of about $5,000-$7,000.

Industry executives uniformly agree buying trends will be nearly impossible to predict once the hikes are imposed.

"Is there going to be some mix or shifting?" asked Wynne. "We spend a lot of time worrying about a $200 or $300 increase, and here comes the government increasing taxes on low-end SUVs by $1,000 and by $6,000 or $7,000 on the high end.

"I don’t have any real science to look at in this market, and I don’t really think any price elasticity model will be able to predict accurately what will happen," the Ford executive continued.

Ford sells the most SUVs in Puerto Rico. Last year, the company sold about 9,000 Explorers and 231 Mountaineers.

"Minivans are included in this whole thing," Wynne said. "That is where this thing impacts the family so much. It is a family tax."

This Caribbean Business article appears courtesy of Casiano Communications.
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