TTAC alum Justin Berkowitz, over at Car and Driver, reports that a government crackdown on tax cheats has resulted in the Italian market for Italian supercars tanking. Ferrari sales went down 50% from 2011 to 2012. Maserati’s Italian sales have dropped 80% since 2009. Lamborghini is apparently selling no more than five cars a month in all of their home country.
The crackdown, which included checkpoint stops and revenue police visits to gatherings of car enthusiasts, was prompted by some pretty flagrant and apparently illegal tax avoidance, but the net result has been that even some tax compliant owners of high end cars have sold off their supercars and substituted less attention drawing rides. That means lower Italian sales for the very car companies that help define Italy in the minds of car enthusiasts world wide. Ferrari president Luca di Montezemolo called his home market “a hostile environment for luxury goods”. Montezemolo pointed out that such luxury goods are an important “resource” for Italy, alluding to the foreign currency such goods bring in. Seven thousand cars is not a large figure in the car biz, but when you consider that the profit margin on a Ferrari is five, or possibly six figures, that’s a substantial ‘resource’, even before you add in Fila’s revenues on all those rosso corsa shirts and shoes. I’m no economist, just a guy who writes about cars, but if I were the Italian government, before I cracked down even harder on buyers of expensive cars I might consider what happened to the French car industry when the French government decided to lavish the tax man’s attention on luxury cars.
Once upon a time, not so very long ago actually, some of the very best cars in the world were French. Brands like Bugatti, Delahaye, Delage, Voisin, Facel and Talbot Lago stood for high performance but also a sense of style that stood out even in an era of magnificent automobiles that today are considered rolling sculpture. Drawing on generations of actual coach building, French automotive coachbuilders were kept busy by the, ahem, carriage trade in the period before World War Two. Today, none of those gloried French automakers exist. Yes, a division of Volkswagen owns the Bugatti brand and Ettore Bugatti’s former estate in Molsheim where
Ferdinand Piech’s sttempt to show that he has the biggest swinging dick in the automotive industry the Veyron is assembled, but nobody, even the folks who own Veyrons, think that the Veyron is a real Bugatti. Peter Mullin has real Bugattis.
Bugattis may have been at the top of le heap Francais, but the other French luxury marques were also highly regarded, so what happened? What happened was the notion of “fiscal horsepower”, cheval fiscal, abbreviated CV, as in the Citroen 2CV, a car built to be taxed as lightly as possible. Today the cheval fiscal is partly based, no surprise, on carbon dioxide emissions, but back in the postwar era, the formula involved, among other things, displacement, number of cylinders, maximum RPM of the engine, and vehicle weight. While the tax scheme promoted the development of small cars like the 2CV or Renault’s 4, it pretty much killed the French luxury car makers. The notion of taxing horsepower was popular in Europe but taxes on luxury and performance cars were particularly onerous in France.
Now right now, some of you are thinking, “Schreiber’s on a right wing anti-tax rant”, but don’t take my word for it. Almost every reference that I can find about French car makers in the postwar era mentions taxes, either as a reason for their success, as in the case of Citroen and their Deux Chevaux, or as a reason for their demise, as with the luxury brands. Looking at Wikipedia (yeah, I know, usual caveats apply), the entry for Talbot-Lago says that their cars, rated by the tax authorities at 15 CV, were taxed at “punitive” levels. When members of the Bugatti family tried to revive the company with the Type 101, its engine was rated at 17 CV, which put annual taxes at the “confiscatory” level. Starting with Sydney Allard’s Cadillac powered cars, a number of European automakers similarly installed American V8s in cars, but France’s Facel-Vega cars, which used Chrysler Hemis and Wedges, never used the biggest Mopar engines. The reason is usually attributed to French taxes. This broker’s listing for a 1949 Talbot-Lago T46 calls the French tax system “infuriating”. Whether you’re coming from the right or from the left, I think it’s fairly factual to say that high domestic taxes on luxury cars killed the French domestic luxury car industry.
The Italian government and tax authorities may think they’re doing their civic duty by cracking down on car enthusiasts who use untaxed income to buy exotic cars, without that crackdown hurting the export of expensive Italian automobiles, but they should consider the example of their neighbors in France. The present dearth of French luxury cars isn’t the only example Italians should heed. In 1990, in the United States, a Republican president and a Democratic Congress passed a special surtax on goods like yachts, private planes and very expensive cars. According to a PBS report in the mid 1990s, the 10% “luxury tax” imposed on yachts purchased in the U.S. almost destroyed American yacht makers. Rich folks didn’t stop buying expensive things, they just bought their boats in place like, ironically, Italy. As part of the general tax crackdown, by the way, Italy has also increased taxes on yachts.
Ronnie Schreiber edits Cars In Depth, a realistic perspective on cars & car culture and the original 3D car site. If you found this post worthwhile, you can dig deeper at Cars In Depth. If the 3D thing freaks you out, don’t worry, all the photo and video players in use at the site have mono options. Thanks for reading – RJS