Out for a rough ride

RIGA - During the 20th century automobiles became an indispensable part of people’s lives. Having a car is no longer considered to be an attribute of luxury. This vehicle is perceived as an essential element of comfort and liberty of movement. However, over the past few years, as the global crisis took hold, the situation changed dramatically for car owners, making them realize every penny paid for their mobility.

According to the statistical data presented by the European Automobile Manufacturers’ Association, auto sales in the EU were comparatively stable until the summer of 2008, which became the starting point of a very sharp fall. In 2009, sales continued to drop even more drastically. The figures were really shocking even for those who were ready to face the worst.

Latvian Road Traffic Safety Department (CSDD) reports that in the course of 2008 in Latvia, 19,192 new vehicles were registered, while in 2009 this figure was only 3,745, a fall of 80.5 percent. This year has hardly started out any better. Figures show that over the first 6 months, 2,048 new cars were registered, which is even less than last year, when this was 2,468.

The executive director of Hansa auto, official  Opel and Chevrolet dealer in Latvia, Aivis Silgals, confirms that 2008-2009 were very difficult years for his company. “We suffered big losses, which continue to affect us radically. Profits are still with a minus sign for us. Last month we managed to sell only 12 cars, which is very small,” says he.

In contrast, the head of the Aura auto company, Ainars Baskis, makes very positive comments, “To be honest, I don’t feel any crisis. You can look out at the streets and see that there are plenty of cars, and each one needs good service. Besides, people constantly go through changes in their lives, which also influence our business. People want a small and beautiful car while young, but then they get married, have children, and at that point they already feel the need for a more spacious and comfortable ‘family’ car. As a result, they come to us. This year we have quite successful car sales and re-sales. Profits are stable with us at the moment. We sell approximately 20 cars per month. Of course, the majority of our income is made by car services, which makes up approximately 55 – 60 percent of the profits.”

One of the difficulties the car dealership sector has to face is Latvia’s tax system. Taxes are mainly applied on acquisition (21 percent), ownership, depending on the weight of a vehicle, motor size (380 euros for 1,000 cc), and registration (0.3 - 5.0 lats / 0.42 - 7.00 euros).

The owners of car dealerships are rather unhappy with the current tax situation. “Latvian VAT kills the car dealership business. A company cannot compete with private persons who import a car from abroad and resell it here for a much cheaper price, and such cases are very common lately,” complains Baskis.

His colleague Silgals also agrees that taxes add up to great expenses. However, he believes that this is not the main source of the difficulties. “It is true that in our country taxes are very high, which has a very big influence on the car dealerships. Nevertheless, there are plenty of other aspects, which on the whole lead to the fall in profits. To begin with, it is the bank policy. It was very easy for a person to buy a car previously. There were times when he could come to us with no money in his pocket, dab his finger onto a car which he liked, and sign a [buying] contract. All this was due to the fact that we could give him a finance lease without any down payment. Now these times are gone. Banks are not eager to give loans anymore. As a result, the customer flow is significantly reduced. People become more prudent and economic with money these days. They are unlikely to waste money on expensive cars. If they make a decision to buy a car, it is usually something more cost-efficient.”

Strangely, but another difficulty which was named is the lack of a qualitative workforce. “Everyone is complaining so much about not being able to find a job. However, I must say that we feel an extreme lack of good workers, in people who would really like to put their efforts into what they do, not only earn money at the end of the month,” says Baskis.

The heads of the car dealerships name different strategies which could help to stay on course. “We are trying to fit into the new circumstances, demands, turnovers. We can do nothing but work harder, and take more care of our customers. We also have to optimize our expenses, including the reduction of salaries,” comments Silgals. He adds that the possibilities of promotion are rather limited at the moment, “Unfortunately, due to the limited budget, there are practically no opportunities to organize any large exhibitions which would advertise our company. We can only rely on the good work of our personnel.”

The first rule which guides Baskis in his work is optimistic thinking. “Looking at bare figures is a very big mistake in this industry. I do not try to analyze my business in the context of crisis. Doing so may turn a person absolutely crazy. What one really needs to do is be positive and look for paths to go through the difficulties.” Besides, he tries to think of some small tips which would help him in his business. “The best strategy is finding the right approach to the clients. It is incorrect to be concerned with money only. First of all, you should make your client feel comfortable and try to understand his needs. For example, when a person comes to us, we offer him coffee or tea. These are very simple things. It does not cost much for us, but helps a client understand that we are friendly and amiable to him,” he says.

Talking about the future, Baskis makes very positive forecasts. “I think that this year will be the start of recovery. I already feel some real signs of improvements. We do not have any global problems like war or natural disaster. Our country is relatively calm and quiet. For this reason, I think we have nothing to fear.”