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Flood of used cars pollutes: Poland's EU

Date: Jan 26, 2005
Contributor: Eve Hayter

Poland's new-car dealershad an awful 2004 and expect 2005 to be just as bad, as they try to cope with a flood of used cars that poured into the country after Poland entered the European Union last May.


Before joining the EU, Poland had high excise duties and value-added taxes coupled with strict rules banning the importation of cars that violated "Euro 2" pollution limits.

In 2003 only 36,000 used cars were imported into Poland, where there are about 11m cars on the road. But that changed when Poland joined the EU in 2004 and the number of imported cars rocketed to 820,000 - all but 20,000 of them brought into the country after May 1.

As a result, new-car sales fell 12 per cent in 2004, to 318,000 vehicles.

The experience of joining the EU more than eight months ago has been positive for most Poles. There had been widespread apprehension about an expected flood of cheap EU food bankrupting the country's many smallhold farmers.

But such fears never came to pass: inexpensive Polish meat, milk and vegetables are instead selling strongly throughout western Europe.

In other areas, however, the years of planning failed to prepare for the unwanted consequences of adjusting to EU membership - and now the government is scrambling to catch up.

Few parts of the economy have been more disrupted than Poland's motor industry as importers take advantage of unforeseen legal loopholes created on May 1. After it became part of the EU, Poland stopped charging VAT on cars bought in from other EU countries, and farmed out the pollution inspection of newly registered cars to local inspection stations.

Taxes are based on the age of a car, not how much pollution it emits.

There is now a growing realisation that these local stations have been issuing pollution certificates too easily and the finance ministry estimates that about 70 per cent of used cars have been undervalued, lowering registration fees paid by their owners.

"It turned out that buyers are able to avoid the law or exploit loopholes in the law," says Maria Hiz, a customs specialist at the finance ministry.

Even those rules are now under threat, as the European Commission hears complaints that Poland's used-car registration fee discriminates against non-Polish imports.

The flood of used cars has had serious repercussions. The value of cars on the road has fallen by 20-30 per cent, says Wojciech Drzewiecki, head of the Samar agency, which studies Poland's car market.

This has made owners less willing to trade in their cars to buy new ones.

"This flood of used cars completely sucked the wind out of new-car sales and used-car values," says David Flanagan, managing director of Chevrolet Poland.

"People who are in the car market and own a late-model used car have seen the value of their vehicle depreciate overnight."

General Motors saw its car sales fall from 37,129 in 2003 to 36,788 in 2004.

Fiat, Poland's market leader, has been hit even harder because most of its sales are in entry-level cars such as the Panda, Punto and Seicento, where buyers are more likely to be tempted by used cars. A new Fiat costs about 30,000 zlotys (£5,150), about five times that of an older but larger used car.

"For the total market, this flood of used cars was a disaster, for small-car makers it was an even bigger disaster," says Fabrice d'Arche, sales director for Fiat Poland.

What is particularly galling for Poland is that other new EU members have handled the used-car issue differently, and have avoided its problems.

In Hungary, for example, importers of older cars face prohibitive taxes. For a car with a 2,500-3,000cc engine that meets "Euro 3" pollution standards, the registration fee is €5,121 (£3,561), while the payment is €7,682 if the engine is at "Euro 2" or lower.

Poland's neighbours, particularly Germany, are thrilled that they been able get to slough off hundreds of thousands of older cars. But Poland's government now recognises it must act.

Used cars are dirtier and more dangerous than new ones.

The finance ministry is working on a project that would create a new tax based on engine size and pollution, to favour newer and less polluting cars. But small-car makers fear the registration fee for a small car could almost double to 1,850 zlotys, while a new larger car would see its registration fee drop by about 80 per cent to 2,000 zlotys.





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