CMTA Chairman Decries Vehicle Import Suspension
By Sulochana Ramiah Mohan
In Sri Lanka, it is incredibly challenging for manufacturer authorised franchisees to carry out a legitimate business with huge investments into infrastructure, staffing and development.
Unlike in most countries around the world, Sri Lanka has no regulations on who can import vehicles, and imposes no criteria or even registration for importers. This has led to a huge number of private importers who have no affiliation to manufacturers and who are not bound by policies and rules applied by manufacturers to provide the most suitable products for each market.
In this backdrop, vehicle importers also lament that the extended import ban with no clear end in sight has left them in dire straits with no ability to plan for their survival.
The Ceylon Motor Traders’ Association (CMTA) members, who are the manufacturer authorised franchise holders for global automotive brands of cars, commercial vehicles 2-wheelers, and 3-wheelers, directly and indirectly provide employment to over 30,000 Sri Lankans across the island, find the restriction of vehicle letters of credit (LCs) came on 19 March 2020 alarming because it did not offer any alternatives or directions.
While every company is trying its best not to cut salaries or jobs, it may become an unfortunate eventuality if things continue the way they are, without clear direction and support from the Government.
Initially on 19 September 2018, the Government said the motor vehicle importers should do 100% cash down to import vehicles. Then two weeks later, in October 2018 they said even if cash down, no importation
Again in October 2018, the Government suspended permits for vehicle imports. Then again on June 1 2019 they allowed permits in stages Once again this year, in March 2020, a complete ban on all vehicle importation (all the circulars did not give reasons as to why all these restrictions were placed in the first place)
However, vehicle importers say the demand for vehicles during the ongoing pandemic is there but consumers panic about buying mainly due to import restrictions. According to the CMTA, most CMTA members only have stocks for another one to three months, after which they will have to contend with how to run their operations and sustain their staff with zero vehicle sales revenues.
Many importers were impacted several weeks before COVID-19’s effects on global logistics. Even when importers applaud the decisive action taken by the Government to contain the pandemic and its effects on the economy and also never argued against the restriction on motor vehicle imports at the time, the industry also needs to consider its continuity and the means by which it will sustain employees.
Talking to Ceylon Today Chairman of the CMTA Yasendra Amerasinghe who is also the Director/Chief Executive Officer at Carmart Limited, said the Easter Attacks were a horrific tragedy and caused tremendous suffering to the families affected, but the economic toll was nowhere near that of COVID-19. As the Government had suspended imports for permit holders in October 2018, prior to the attacks, the motor industry was in any case already operating under restrictions. No further import restrictions were imposed after the attacks and the Government provided a plan to phase imports back in. In contrast, with COVID-19 we were faced with an unprecedented two-month curfew, which although we understand was absolutely necessary to control the virus, caused untold damage to the economy.
Amarasinghe said the Association has approached Prime Minster Mahinda Rajapaksa and very soon will meet and discuss their plight and find a solution. “We want a timeline”.
The Ceylon Motor Traders’ Association (CMTA) founded 100 years ago in 1919 is also affiliated to the Ceylon Chamber of Commerce. It is the only association that has direct links to all international automobile brands represented in Sri Lanka, through their respective manufacturer authorised franchisees. It is the most senior automotive trade association in the region.
Came as a shock
Beyond the ban on new LCs for vehicles, banks were also ordered not to pay existing LCs, which were opened long before import restrictions were imposed. “This was a complete shock, as it contravenes Uniform Customs and Practice (UCP 600) regulations that govern international trade banking. Furthermore, most LCs are confirmed, meaning they are essentially insured by a foreign bank for payment default.
Hence, a supplier is within their rights to disregard our Government’s orders, ship the cars and claim their payment from the confirming foreign bank. This, however, would constitute a default by our local bank, which would cause it to be blacklisted in international trade, which is no small issue.”Moreover, he added that, “if the customer is a permit holder, such as a doctor or professor, their vehicle would then be stuck in port unable to be cleared, and they would also lose the use of their permit. In this scenario, manufacturers will also lose faith in Sri Lankan companies as credible and trustworthy trading partners, which would greatly affect our country’s economy in the long term.”
For the first time, on 19 March 2020 there was also a ban introduced on some critically important spare parts such as tyres, brake pads and suspension parts, as well as parts for accident repairs (although this has since been somewhat relaxed to allow certain parts to be imported on 180 days credit). Some sizes of tyres however, are still temporarily suspended, while others have been granted relief to be imported on 90-day credit terms.
Import restrictions had already been in place for a few months when the attacks happened in 2019, so, imports were already lower than usual. However, a clearly defined schedule to reopen imports in phases was provided, so that the industry and vehicle buyers could plan ahead.
“Many of our Principals have asked - and rightly so - to be provided with proof of the suspension of vehicle imports by the Government. However, due to the numerous cross references of Gazettes/Operating Instructions and the number of changes/additions/deletions that have been made, it is impossible to provide a document that clearly outlines the duration of the vehicle import suspension. To our understanding, it was originally until mid-June, which was extended to mid-July, and finally on 16 July 2020 vehicle imports were suspended “until further notice”. However, one must follow and decipher a web of interrelated Gazette notifications to ascertain this.
The CMTA believes that the Government needs to take steps to regulate automotive imports. We have suggested to implement a scheme to screen and register vehicle importers to control the quality and quantity of imports of motor vehicles. This is a practice that is employed by almost all countries around the world and will provide assurance to consumers as they are buying a vehicle from a credible corporate entity and not from an unscrupulous operator. At the moment, only about 30% of vehicle imports are through manufacturer authorised franchisees. We believe that the Government could considerably reduce foreign currency outflow, whilst also protecting Sri Lankan consumers and improving the standards of the automobile industry by only allowing legitimate companies to import vehicles.
“The CMTA’s mission is to ensure sustainable growth for the automotive industry, so, it contributes to the social and economic development of the nation. We have a heritage of 100 years behind us with the support of global automotive manufacturers, and it is our duty to work closely with the Government to ensure that the industry operates with integrity and in a sustainable manner for the future of the country.”
In the last full financial year, CMTA members provided over Rs. 100 billion worth business to the leasing industry alone. An important point to note is that this import ban also covers motorcycles, trishaws and commercial vehicles such as trucks and busses, as well as vehicles such as tipper trucks used in construction and mining industries. Cutting off vehicle imports altogether will have huge ramifications to all sectors that depend on the automotive industry.
Between mid March to mid May 2020, revenue was zero, which was unprecedented. Year on year, Amarasinghe says his company is facing a revenue drop of around 70% and many companies are facing an even worse scenario. “While the CMTA understands the challenges faced to the country’s economy and foreign reserves, and our members have accepted their share of the burden and are trying their best to minimise salary reductions and/or job cuts so far, member companies and their dealers will have no option but to take drastic action to survive, as there is no clear direction to plan otherwise. Soon after the vehicle import suspension, we submitted letters to the authorities requesting for clear communication as to when the import restrictions are expected to be lifted in order to make plans to ensure the continuity of the industry. Unfortunately, there has been no proper response to these requests leaving the industry uncertain of its future.
Amarasinghe says that they have not asked for a relief fund as such,what we would like is to be able to import at least a minimal number of vehicles to be able to cover our overheads, the major portion of which is salaries. We also understand that it may be impossible for the Government to open imports immediately due to the drop in foreign earnings. However, they would like to have a set date in the future when at least some level of imports will be permitted. “We would very much like to have a constructive dialogue with the relevant Government authorities to try to work out a mutually viable way forward.”
Flagrant violation of assembly regulations
On the serious allegations of new vehicles “spare parts being imported and assembled in Sri Lanka that is sold for cheaper prices”, Amaraisnghe said that fortunately, the Government put a stop to the operation that was dismantling or cutting apart old cars overseas and putting them back together in Sri Lanka. The CMTA also fought against this malpractice at the time as it was placing consumers at great risk and was a flagrant violation of assembly regulations. The current companies carrying out assembly are with the proper approvals and concurrence of their respective manufacturers.
“In a broad sense when looking at assembly, a few factors need to be considered, including the cost of the imported kit of parts, the value of parts that can be locally produced as well as the tax revenue. If there is a substantial local value addition and hence foreign currency saving, it may justify the lower taxation.
However, if there is no significant local value addition, there will be a similar foreign currency outflow to assemble a car locally as to import it fully built, but the Government will lose a substantial amount of revenue by way of tax concessions.Vehicle assembly requires both an ecosystem of component manufacturers, as well as a market that is able to absorb the higher volumes that are required to make investments into assembly feasible. It is certainly not feasible for all brands that are currently being imported to switch to local assembly.