Driving Supply and Demand

There aren’t enough boots on the ground, planes in the air, boats afloat, or heavy artillery for Ukraine to combat and defeat Putin’s War.

Not enough water is causing draughts in too many places, just as a scarcity of food are keeping too many people thirsty and hungry.

Climate crises are creating more hurricanes, floods, typhoons, mudslides, ice melts, and earthquakes than the earth can handle.

The Israelis and Palestinians are at it again, India and Pakistan continue their disputes, and tribal feuds around the world are doing away with entire populations.

Covid is still rising, ebbing, and hovering like the flu, without enough masks, vaccines, doctors and nurses to staff hospitals and treatment centers.

The soaring cost of housing has increased rents in Portugal by 25% and house prices by 65% over the last ten years.

And new cars are almost nowhere to be found.

According to a report by CNN Portugal, the government hopes to gain a further €59 million with the Vehicle Tax (ISV), which is paid when you buy a new car. But the market has a different perspective from the government.

Because there are several factors that negatively influence the car-buying sector.

Starting with the semiconductor crisis, which is “far from being resolved,” thus limiting supply. Then there is the impact of the war in Ukraine, as exemplified by the “Ukrainian factories that stopped due to the shortage of cabling.” Raw materials are in short supply. Finally, the uncertainty generated by fuel prices may also delay the decision of many Portuguese people to buy a new car.

“Reduce the taxes to reasonable levels, sales may increase and might very well result in higher tax revenues,” commented one reader of the story published by The Portugal News from which the above paragraphs are quoted. Said another, “With ridiculously high vehicle taxes, accelerating inflation, rapidly rising fuel costs, very high vehicle prices, low wages and low wage increases, why would anyone try to help the government coffers?” 

Hyundai’s Santa Fe model starts at €58,950 (US $63,750) and the median price of a Kia is €36,000 (US $39,000)–neither including IVA (23%), road taxes (between US $250 and $500 or more), transportation and administrative expenses including matriculation costs (upwards of €1,000). That’s not cheap for “entry-level” cars. How much do they cost now in the USA?

Inflation is back, with too much funny money chasing after not enough goods and services that people need to live and economies to survive.

It’s said that confession is good for the soul, so here goes mine:

We decided to buy a new car—all things considered, probably the worse time to do so.

Nonetheless, I can’t have what we want or need … at least not now.

Because it just ain’t available!

“It” is a 2022 Dacia Duster, requiring about 10,000 euros out-of-pocket after adding in IVA (23%), Portugal road tax (about €375), transportation, dealer preparation, matriculation, and administrative costs (€1,150) … less whatever they’ll give me for my humble, hard-working minivan.

First it was the supply chain, now it’s the lack of “raw materials” needed to build the car, combined with mobility difficulties of transporting such relatively large heavyweights manufactured in the eastern part of the EU to the west.

Yeah, if you want one of those upscale vehicles costing > €50,000 or more, you may be able to get a Peugeot, Renault, Mercedes, BMW, Audi, or Volvo – let alone cherry pick the top of the line on some of these pristine brands selling easily for €100K, €150K, €195K … and more.

How do they afford it, I wonder, in one of the poorest per capita countries in the European Union? (I’m told by banker friends, people who ought to know, that most of these high-priced ego-boosters are leased, not purchased. Still, paying upwards of €500 per month on time seems like doing time when it comes down to it.)

Mark my words: we’ve already experienced a huge hike – 30% or more – in the cost of used cars. Once new vehicles begin trickling through the supposedly barrier-less countries comprising the European Union, we’re going to see a major jump in new car prices, as well.

To be sure, so that we’re clear: Vehicles are, perhaps, the only major commodity not included in the free movement of trade across national boundaries. They’re subject to taxes, import fees, regulations, and retrofitting between one country and another (or several).

“So, why don’t you just buy a decent used car?” you may ask. “After all, unlike elsewhere (i.e., the USA), they’re generally covered by two-year guarantees imposed on dealerships by government mandate.”

Yeah, well …

First: previously-owned cars with low mileage in good condition at fair and reasonable prices are few and far between. Second: That “guarantee” requires you to return a car needing repairs – by hook or by crook or by tow truck – to the dealer you purchased it from, regardless of the distance. Insurance companies usually won’t pay for long-distance towing costs and who knows how or with whose parts the dealer will meet that obligation? Third: my grandmother, in her wisdom, warned me, “Never buy a used car. Why inherit someone else’s problems? Better to purchase a lower-cost new car than a fancy frock covering who-knows-what blemishes?”

We learned that the hard way after buying two used cars from dealers and “stands” during our first six months living in Portugal.

Hence, we decided to buy a Dacia Duster. Good reviews. Great history. Ample space for passengers and baggage. And all the extras – air conditioning, push buttons to open or close windows and doors, plenty of headroom and space for your knees as legs, comfortable and reasonably attractive. All for less than €22,000 ($24,000)—including IVA, road taxes, and all those assorted fees.

Trouble is, none are to be found. Nowhere in Portugal.

“We are living in a time of real car shortage,” said Nuno, one of the dealer reps I spoke to (in Portuguese–the quote is translated to English). “In addition to production delays, there is now a lack of raw material, which leads to a lack of vehicles for delivery. Finding a Duster like this is a real find, as I have no forecast to receive another of these vehicle.”

The dealers (who have access to exactly what cars are here and where in in the country) are estimating six months to a year, maybe even longer, from the time you order a car until it’s delivered.

Which brings us to supply-and-demand economics and the inability to cut corners or negotiate a better deal.

These are things to know before buying a vehicle here:

● You can’t go out and kick the tires of cars on the lot.

● That’s because there aren’t really any “lots,” except for used vehicles.

● Those cars you see in front of or surrounding car dealerships either already have been sold, are “service” cars and used trade-ins for sale, or belong to employees or customers.

● In Portugal, there are no taxes when you buy an used car – you’ll only pay the registration fee (about 55€/65€, online/offline). There are no state, province, or regional taxes, either.

● More often than not, new car dealers don’t hang onto their trade-ins. Usually, they’re quickly wholesaled to Portugal’s used car trade.

● Trade-in values are exceptionally low. We were offered €3,800 for a car that typically retails between €11,500 and €15,000 on the used car stands. Truth be told, though, we accepted €7,500 for our car from the dealer who ultimately sold us the Dacia.

● Unlike the USA and (maybe) some other countries with huge inventories of new vehicles in different colors and with a variety of options just waiting to go on sale – especially right before the next year’s models arrive – typically, only one car of a given make or model is in a Portuguese showroom. Dealers are required to hold onto these “tester” or viaturas de serviço (“service” or “courtesy” cars) for at least four months become they can sell them.

● Most new cars are ordered by the customer, not selected from available inventory, and customized to his or her specs. Then begins the interminable wait from order to delivery.

● Prices are set by the manufacturers, not the dealers, so there’s often very little room to negotiate. Dealers have only a little leeway in their “administrative” costs and how much they’ll give for your trade-in. So, ultimately, the search for a dealership to buy from has more to do with how much it will give you for your car than what they’ll charge you for theirs.

● Unlike nearly everything else in Portugal (and Spain), the advertised price of new vehicles doesn’t include sales tax–IVA (23% in Portugal, 21% in Spain). That’s a hefty chunk of change–about a quarter of the designated sales price must be added onto the vehicle’s price to cover the costs of IVA and Portugal’s road tax.

● “Matriculation” (i.e., ownership as evidenced by your license plates or tags) in Portugal is visible on license plates—which stay with the cars, regardless of how many times those cars change hands. With your matriculation number, dealers already know a lot about your vehicle, even before inspecting it.

● If you decide to purchase a “service” car from a dealer, remember that it will already have been registered and you will be considered the second owner–even if the car has only 500 kms. This may or may not matter to you, but it will affect the vehicle’s value if and when you decide to sell or trade it in later on.

● Due to the uncertainty of when new cars will arrive, dealers are hesitant to quote prices on trade-ins. After all, how many miles (kilometers) may actually be on your odometer six months … eight … a year or more after you place an order? Surely, the value of your old car decreases as the wait for your new one increases.

● The car of your dreams can take six months to a year (or more) from the time that you order it until the keys are in your hand.

Across the border in (Badajoz) Spain — just 15 minutes from our house in Elvas — there’s also a paucity of new cars to be had. But the prices for identical vehicles are substantially lower there. Why? For one thing, there’s IVA: Spain’s 21% sales tax can make a lesser dent in the cost of a car. Then, too, Spain doesn’t have the “road tax” Portugal imposes. Deduct another €250-€500 (or more). In addition, manufacturers “package” their options differently. What already comes in the base price of a new car purchased in Spain may be option(s) in Portugal. Our Duster in Spain would come with everything included, except metallized paint.

Bottom line: The same car in Spain would cost us €1,700 (US $1,850) less than in Portugal.

Why not buy the car in Spain, then, you may wonder. Lots of reasons! For one, Spanish car dealers can only sell you a car if you have proof of residence (a property owned or rented) in Spain and an NIE–Spain’s fiscal number equivalent to Portugal’s NIF. Since we’ve owned a pied-a-terre in Andalucía for over 15 years, we qualify. The challenge, though, is getting the car legally across the border and driving it daily.

Portugal prohibits that.

Technically, in Portugal one can own and drive a car with another country’s license plates for no more than half a year (183 days–consecutive or not). During that time, you can expect to be pulled over by the police and GNR, asking to see all your documents–both yours and the car’s. “How long have you been driving this car in Portugal?” they’ll ask. “Why do you have residencia and a driver’s license issued by Portugal?” You better get those answers right or you’ll be subject to very expensive fines and lots of embarrassment. Don’t forget, too, that no insurer will provide the required coverage for cars matriculated in another country. And review all the “accessories” — like flashlights, first aid kits, and paperwork — required to be at your fingertips under Portuguese law.

Why not buy the car in Spain and then register it in Portugal? That will work … if you’re willing to be double-taxed: Spain’s 21% + Portugal’s 23% + Portugal’s road tax. But first, you’ll need to go through all the red tape and inspections of importing the car (which, technically, is what you’re doing).

Since border towns are so close to each other, perhaps the dealer will be willing to register the car you bought from him in Spain with the financial and tax authorities in Portugal, simply if you pay Portugal’s additional IVA and road taxes?

Nope.

But, what if I buy and pay for the car from the dealer in Spain and take all the paperwork showing my bill of sale and documentation to ownership to Portugal? Maybe I can register the car directly in Portugal myself?

No way, José.

I might not be particularly patient, but I am persistent using the Internet for all it’s worth in my search for a new Dacia Duster in any of the available colors except orange.

P.S. I just heard back from two dealers: Nuno will have what we want, but in a gas-powered version, next month. It’s one of his service cars. Total price, all inclusive: €20,990. The same Friday, I heard from another dealer who is expecting a new car sometime soon. How soon? Who really knows? This is Portugal. But he promised to call me on Monday with whatever information — ETA, color, options, price, etc. — and an “offer” approved by his manager. I’m still waiting for that call …

Bruce Joffe is publisher and creative director of Portugal Living Magazine. Read the current issue online and subscribe to the magazine free of charge via this link:
https://portugallivingmagazine.com/our-current-issue

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