British Columbia’s high-end auto dealers are suffering sales losses and thinner margins due to dramatic increases in provincial tax that went into effect one year ago, adding as much as 20 per cent to a new vehicle on top of the five per cent federal GST.
“Not only were the effects real, they were immediate,” said Paul Killeen, customer-relations supervisor at Brian Jessel BMW in Vancouver. “Watching the PST go up as high as it did ... made people think differently about how they are fiscally, and that pause is what’s really brought the market down.”
On April 1, 2018, B.C.’s NDP government raised the provincial sales tax to 15 per cent from 10 on new and used vehicles priced between $125,000 and $149,999. On vehicles $150,000 and over, the tax increased to 20 per cent from 10. There’s also the five-per-cent federal GST, bring- ing the total tax bill on a $150,000 car to $37,500, a full 25 per cent. The increase also applied to leased vehicles, including customers already in a contract.
“There’s no question that people that were considering [a new BMW] or are continuing from one high-end product to another, now they’re considering something more cost-effective,” said Killeen.
Morris Lubinitch, general manag- er at McLaren Vancouver, said the tax prompted some customers to walk out of deals.
“[Our clients] are in business, and they’re smart with their money.”
It was a similar story at Jessel BMW, with potential buyers making last-minute changes to avoid the tax.
“I’ve had people come in here that were looking for a 7-series product and they’ve ended up buying a one-year-old 7 series – especially purchas-ers, as opposed to someone who’s leas- ing a vehicle,” said Killeen.
The depreciation associated with some of the higher-end cars can bring the price of a used model below that $125,000 bracket, he said.
Blair Qualey, president of the New Car Dealers Association of B.C., said local businesses are losing out to other jurisdictions that charge lower taxes. Many luxury-car clients hold residences or businesses in other provinces or the United States, and are shopping in those areas for their luxury-car fix, he said.
At Ferrari-Maserati of Vancouver, General Manager Mark Edmonds said sales declines of between 15 and 20 per cent have led to staff cuts at the store on Burrard Street, the hub of luxury-auto dealers.
“I employ four fewer people than I did before the government’s announcement,” said Edmonds, who currently has 27 people on staff.
“I can barely sell a car between $150,000 to $225,000 because taxes are such a humongous portion of the cost of the car.”
Maserati sales across B.C. plum- meted 45.6 per cent last year com- pared with 2017, according to statistics compiled by DesRosiers Automotive Consultants. Of the five models offered by the brand, three have a starting price of more than $125,000. Two start at more than $150,000. There’s no indi- cation of how much of the decline was the result of increased taxes.
To avoid the tax, some customers are purchasing vehicles in other jurisdic- tions, Edmonds said — such as California or Alberta — adding that a long-time cli- ent said he would buy his next Ferrari in California, where he also owns a home.
Every sale Edmonds does make “is a grind” as prospective customers aggressively seek discounts.
“Nobody just says ‘here’s my bank draft. I’m excited and happy.’ It’s a fight. And the first thing they ask is ‘how do I get around this [tax].’”
Discounts mean lower profit margins, said Edmonds. “Last year, we had a number of cars that were $130,000. After they announced that tax, I have had to discount them. There’s just no way around it; the dif- ference between $124,900 and $125,000 is about $6,000 [in taxes].”
FEWER CARS, LESS TAX COLLECTED
What has picked up are sales to out-of-province buyers, said Edmonds, citing the sale of a 2011 Ferrari 458 to an Ontario customer.
“That’s a nice car we would love to keep in B.C., sell it to a guy in B.C., have him service it here and trade it back with us. But now the car is gone.”
And so is sales tax revenue that would have been collected by the province, he said.
“It’s a little bit of a vicious circle. I submitted substantially less PST in 2018 than I did in 2017. So, forget about my sales, I sent them less sales tax.”
The province has characterized the tax hike as “one of the ways our government is improving tax fairness a progressivity,” and estimated it would generate $20 million over two years.
The Ministry of Finance told the Vancouver Sun the government did not break down how much PST it received for different categories of cars, and was unable to say whether the new tax rates have affected revenue.
Wolfgang Hoffmann, president of Jaguar Land Rover Canada, said while sales across the country grew last year, they stayed “flat” in B.C.
“It’s not a very good situation unfortunately,” he said at the recent Automotive News Canada Congress in Toronto. “We had a very fantastic year last year, but there are some dealers who unfortunately suffered, stayed flat or couldn’t grow.”
The province’s dealers’ association had lobbied the government to address its concerns in February’s provincial budget, but to no avail.