Car dealerships expect sales boom before tax rises

New cars.
New cars. Source: Siim Lõvi /ERR

Car dealerships expected a wave of interest over the next year as customers try to beat next year's tax hikes. Both individuals and businesses are likely to be on the hunt for a bargain, they believe.

There is no sign of rising interest at the moment, Citymotors sales manager Jüri-Bruno Asari told ERR. But the situation may well change towards the end of 2023 and the start of 2024.

Next year VAT will rise to 22 percent and a car registration fee will be introduced shortly after which will range from a few hundred euros to several thousand, depending on the vehicle.

Customers planning to exchange their cars will likely try before these come into effect.

Asari said the company, which sells Renault and Dacias, is planning what to buy in advance in anticipation of booming sales.

"There could be a kind of awakening, where they look very specifically at what is in hand at the moment, what the current cost is, and if they can afford to exchange," Asar said. 

He said banks are also trying to find out from car dealers how consumption patterns are changing.

"Banks are asking us whether we see that there could be a storm towards the end of the year, that people will come and say, "I'll take it now, otherwise it will be more expensive later," said Asari.

Rene Varek, CEO of Amserv Group, which sells Toyotas, the most popular cars in Estonia, said it is possible companies with fleets of vehicles may renew them in the near future.

"I think there could really be a jump in corporate sales in the next 10-12 months now, before the new taxes come in. A lot of corporations may replace their fleets," he said.

However, the CEO also highlighted that the industry has not entirely recovered from the chip crisis and may struggle to meet increased demand.

"Even if, for example, we wanted to order 100 Land Cruisers or 500 Land Cruisers or any other cars that would be subject to a higher tax, such options are actually limited for a very large number of car importers and dealers. Factories are not yet able to produce in very large volumes," said Varek.

Car tax may change customers' consumption habits

The Ministry of Finance's proposed new car tax to reduce CO2 emissions could also push customers to consider different options.

On Wednesday, the ministry announced its proposals for car registration and annual taxation. They will likely be based on horsepower, weight, and CO2 emissions.

Registration will cost upwards of €300 and the annual tax starts at €30. Owners of older cars can expect to pay less. The ministry is awaiting feedback, but the taxes will come into effect in July 2024.

Varek was critical of charging older vehicles less, as they create more pollution.

"It is very difficult to estimate the impact today, but the assumptions for this tax suggest that it is very likely that, sadly, our car fleet will start to age," said Varek.

But Citymotors, which sells new cars, is not worried. Jüri-Bruno Asari said these vehicles come with a warranty, better fuel consumption, and a loan with a lower margin can be taken out to pay for them. Additionally, it is easier to predict the total cost compared to a used car.

Varek said older cars have more problems.

"When you live in your old car, sold to you directly by somebody from somewhere in Germany, which has done maybe 200,000 kilometers, you've got a ticking time bomb. Can you get through the inspection, can you repair the gearbox there? All the stuff comes out of your own pocket," he said.

Varek believes the new car tax will definitely see customer change their habits.

"There will be an optimization towards a smaller, lighter car fleet. And definitely monitor CO2 levels so that it will be cheaper to keep a car in the future," said Varek.


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Editor: Huko Aaspollu, Helen Wright

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