Government in the driver's seat
Representatives from the automotive industry met with Finance Minister Teresa Lubińska and the former Deputy Finance Minister Jarosław Neneman during a business breakfast organized by the Warsaw Business Journal and the Polish Confederation of Private Employers (PKPP) Lewiatan to discuss the problems confronting the industry and to find possible remedies for the current crisis.
This past year was a disaster for the automotive sector in Poland. According to car-market research group Samar, 217,009 new cars were sold in Poland in the first 11 months of 2005, which represents a 26.3 percent fall year-on-year. The figures for November might be better than the average for the year, but they still represent a nearly 11-percent decline in sales of new vehicles.
Out with the old
At the same time the uncontrolled influx of used cars continued. "Around one million old, used cars are imported to Poland each year," the president of Fiat Polska and the president of PKPP's automotive industry sector, Enrico Pavoni, said. According to Samar, over 725,000 used cars were imported to Poland between January and October 2005. The wave of used cars started after Poland's accession to the EU in May 2004. More than 811,000 second-hand vehicles were brought into Poland between May and the end of 2004. In 1999 Poland was the sixth-largest automotive market in Europe, but it has since tumbled down the rankings to 12th position.
The president of Volvo Auto Polska and the president of the Automotive Association SOIS, Paweł Kacprzyk, pointed out another facet of the crisis: "Together the 28 members of our association have around 1,600 dealers all across Poland. Many of these dealers have invested in their business based on entirely different forecasts. Now we see that profitability is falling, debt is growing and so is the risk of insolvency. The sector is becoming increasingly risky to invest in.
"We would like to continue to provide jobs, but the situation is very hard," Kacprzyk added. Pavoni underlined the importance of the automotive sector to Poland's economy. "This industry gives jobs to tens of thousands of Poles," he said.
Devil in the details
The Finance Minister Teresa Lubińska spoke of the government's determination to stimulate economic growth, but she neglected to mention specific provisions regarding the automotive industry. She promised that the environmental tax, already proposed by the previous parliament but voted down in May by all parties, would be introduced to replace the current excise.
However, at the same time she expressed doubts that the lowering of taxes would have a positive influence on economic growth. It fell to former Deputy Finance Minister and tax specialist Jarosław Neneman to field the industry's complaints.
Marek Zuber, an economic adviser to the Prime Minister, explained that the government has no intention of limiting the import of used cars. "The large number of imports is a result of the regulations, which are subject to abuse," he said.
Environment tax
The environment tax, aimed to replace the excise on imported cars, was the key topic of the discussion. Pavoni complained that producers and importers of new cars can only sell vehicles that comply with the latest Euro 4 ecological regulations. Used cars that meet the less stringent Euro 1 or Euro 2 regulations can be imported. "Those old cars are dangerous and are environmentally unfriendly," Pavoni complained.
Neneman said the government is working on a new environment tax, which would be a one-off payment based on a car's engine size and CO2 emissions. "The new project will take into the account the value of the car when we think about taxation," he said. "It won't be based on an estimator's value, but rather on the drop in value percentage-wise." However, he stressed that the purpose of the Ministry of Finance is to collect taxes and not to focus on technical examinations of used cars brought into Poland. The former Deputy Minister added that the goal of the tax is to "rebuild the market."
International competition
Attracting foreign direct investment in this sector is crucial, and in the past a number of car manufacturers have chosen to locate their plants in Slovakia and the Czech Republic, rather than Poland.
Neneman played down the Slovak's successes in this field and he wants Poland to take another path to attract investors. "It's better to create a stable foundation for investors, in the judicial system, in the public administration, and not just take part in bidding or in a race of promises on who will give more," he said.
Volvo Auto's Kacprzyk concluded by making an appeal from the industry to the government: "We expect the government to put the market on the right path, on the path of development and growth." Deputy Minister Neneman disclosed that from January, the draft project will go through the necessary procedures, but didn't reveal how long it would take Parliament to complete.
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Teresa Lubińska - Finance Minister
We are working on an environmental tax. It will be a replacement for the excise duty, which is a source of conflict with Strasbourg. We are preparing the tax so that we will comply with all the rules that are compulsory for EU countries.
I will ask the authors of the draft of the environmental tax not to be too restrictive on cars with a low engine capacity. In other words, we are talking about the group of consumers who are not that well off.
Enrico Pavoni - president of Fiat Polska and president of PKPP's automotive division
On the condition of the market: The market is going down and it has fallen to the level seen at the beginning of the last decade. It is similar to what was happening in 1992 and 1993. This is really a phenomenon, because it is rather atypical for a country that is developing to have a weakening automotive market. The entrance of around a million used cars is the main reason for this.
On environmental regulations: The producers can only sell new cars that abide by the Euro 4 environmental regulations, while the importers of used cars can bring in cars that do not meet even Euro 1 or Euro 2 standards. Whom does it serve? In three, maybe five years these cars will not be good for anything.
Paweł Kacprzyk - president of Volvo Auto Polska and president of the Automotive Association SOIS
On the expectations for 2006: It will not be dramatically different from this year. We expect a further fall in sales of new cars and nobody really expects significant changes in the market. However, we await regulations that will put the industry back on the right path, the path of growth and development.
When meeting our dealers I am often confronted with questions about the visions of the market. They ask me whether it is a vision of a market based on technological innovations and new technologies. I am not able to honestly answer their questions.
Jacek Pawlak - director of Toyota Motor Poland
On the investment criteria in Poland: Infrastructure is definitely taken into account, as cars are made up of 30,000 parts. The lack of a modern road and highway system is a problem. The potential of the market is also important - Poland has a potential comparable to Spain. However, while 1.5 million new cars are sold in Spain annually, the number for Poland is 200,000.
Jarosław Neneman - former Deputy Finance Minister
The objective is that we want people in this country to drive safely and also environmentally safe cars. We will have to adopt taxation solutions, which will allow for the import of environmentally safe cars into Poland.
The idea of anyone estimating the value of a car, be that a customs officer or a tax officer, is not a good one. The tax should not be somebody's estimate. What we want to propose is a percentage of the reduction in the car's value - it wouldn't be bound to any specific car. Plus those taxpayers who considered the system unfair would still be able to call upon an expert to estimate the value.
Marek Zuber - economic adviser to the Prime Minister
Industry: We are very proud of our export activities, because they are the driving force of the Polish economy. Two-thirds of the country's exports are related to the automotive industry. It is safe to say that Poland is developing the automotive industry to quite a significant extent.
