The automotive industry, one year into the COVID-19 pandemic: navigating current challenges, the shift to sustainable mobility: Mazars

According to ACAROM (The Association of Romanian Automotive Manufacturers), during 2020, the production of cars in Romania reached 438,107 units, registering a decrease of 10.67%, compared to 2019, when 490,412 units were produced. The statistics also showed a downward trend in the case of new cars registered in 2020.

This year is no bearer of good news for the automotive industry either. In January, 10.71% fewer units were produced in Romania than in the same period last year. The two major Romanian manufacturers, Dacia and Ford, registered similar production levels, achieving approximately the same number of units in their factories in Mioveni, respectively in Craiova.

As predicted last year, it is difficult to estimate when the COVID-19 pandemic will come to an end, so it is premature to consider a return to the initial mode of operation. However, the industry is gradually recovering, and the figures show that the preventive measures taken by the producers have been effective. Among them, we mention investments in equipment for personal hygiene, limitation of professional travel, distancing at work, implementation of teleworking activity or granting days off for parents (for supervising children, in case of a temporary closure of schools), the ability to quickly identify employees at risk of infection, as well as the isolation of those infected or the rethinking of the production processes and supply chains that have been severely affected by travel restrictions.

„Last year, we have noticed that car dealers have started to adapt their activity, trying to meet the needs of customers by simplifying the purchasing processes. In addition to using existing online tools, such as the car’s configurator, price calculator or the test-drive programming, the portfolio of the services they offer expanded so that the reduction in car sales does not affect them much.”, mentioned Alexandru Stanciu, Manager, Tax, Mazars Romania.

Customers can now turn to dealers to prepare the documentation for the Rabla program, the registration of purchased cars, or even ensuring the delivery of cars directly to their homes. We are in a situation where players from the automotive sector need to identify industry opportunities and at the same time face new challenges.

Increased demand for sustainable cars

Globally, there is pressure on the automotive industry to make fleets greener and more efficient. „EU regulations require OEMs to reduce emissions to 95 grams per kilometer on average, and OEMs are under a lot of pressure to bring their fleets in line and avoid fines for non-compliance. “, mentioned Dr. Christian Back, Global Co-Head of Automotive Sector, Mazars Europe.

However, such constraints also give rise to business opportunities. Ford, one of the largest car manufacturers in Romania, has already announced the transition to a 100% electric future in Europe. Company officials said they would invest more than $1bn in modernising the plant in Cologne, Germany. Ford estimates that by 2026, 100% of the cars sold in the EU will be electric or hybrid, and by 2030 all cars produced in Europe will be electric.

Even if in the first part of 2021, the number of new car registrations in Romania decreased, we have noticed that consumers’ preference for „green” cars (electric and hybrid) has increased significantly (by about 26% compared to last year, according to data provided by the Automotive Manufacturers and Importers Association – APIA).

Although consumers tend to be more and more interested in sustainable alternatives, the cost of these cars is still a decisive factor in their choices. Electric vehicles remain significantly more expensive than other types of cars, even if in the long run fuel and maintenance costs offset this difference. To increase customers’ interest in „green” cars, it will be necessary for automotive players to collaborate and identify affordable solutions so that the production cost and implicitly the price to decrease.

At the same time, the authorities are taking measures to improve Romania’s car fleet, which is one of the oldest in Europe. Recently, the Ministry of Environment announced important changes to the Rabla program to support the purchase of new or electric cars. This increases the scrapping bonus (from RON 6,000 to RON 7,500), while the budget for the purchase of electric or plug-in cars will double.

In addition to the incentives given to consumers who buy such cars, the authorities must continue to focus on improving the charging infrastructure of electric cars, as the range is the main concern when considering the shift to „green” cars.

The online acquisition of cars has a high potential

2020 was an important year for the e-commerce market, even when we are talking about cars. Manufacturers have launched dedicated sites through which customers can choose their desired car, can check in the stock of which dealer the car can be found, and after completing all the documents, the purchase can be made online, while the delivery will take place at the customer’s home or in the showroom. Even though the sales of new cars are on a downward trend, the imports of used cars continue to remain high.

„The online sales volumes are still low, but the potential for growth is huge. Romania has a real need for digitalization and it has mattered enormously that important public institutions have advanced considerably in 2020 in this regard. The automotive industry can support online experiences in car purchasing, financing, and insuring, including in the area of vehicle fleet ​​coordination. There are several steps to be taken before the entire digital infrastructure is built, and Porsche Finance Group wants to support this approach in order to offer a 100% online experience to its customers.”, mentioned Andrei Constantinescu, CFO, Porsche Finance Group Romania.

Brexit – a new challenge for the automotive industry

As of 1 January 2021, the Trade and Cooperation Agreement between the European Union and the United Kingdom entered into force, which sets out general rules for cooperation in the automotive sector. However, car manufacturers and also OEMs have had to carefully analyse and/or readjust existing business models, given the impending practical difficulties they are beginning to face (additional costs with reorganizing supply chains, training of staff, regulatory changes, additional reporting, etc.).

Fiscal measures with impact on the cash flow optimization

To address the negative economic impact of the COVID-19 pandemic, governments around the world have taken drastic measures from a fiscal point of view. In 2020, the Romanian authorities came to the aid of the business environment with a series of fiscal measures, some of which were recently extended until the beginning of 2022, to mitigate the negative impact generated by the pandemic, against a background of an already declining European car market even before the onset of this global challenge. We remind here the rescheduling of payments of budgetary obligations, the postponement of the payment of taxes, the acceleration of VAT refund, tax exemptions for remunerations paid to employees working from home (within the monthly threshold of RON 400), etc. All these measures were completed at the end of 2020 with the most important package of amendments to the Fiscal Code and the Fiscal Procedure Code (fiscal consolidation for corporate tax, relaxation of the conditions for granting the certificate for deferment of import VAT, full deductibility for adjustments regarding the impairment of receivables starting with January 1, 2022, etc.), measures requested by the business environment for more than 3 years.

„At a declarative level, the tax authorities said that their priority for the coming years is to increase tax collection through digitalization. Although the recent experience has shown us that shifting to a digital tax administration is a bold goal, we have noticed that digitalization seems to advance faster in times of crisis. One year after the outbreak of the pandemic, we see how remote tax inspections have become the norm, authorities are much more receptive to organizing online meetings, and easy access to the requested information leads to reductions of administrative costs for both taxpayers and the authorities.”, mentioned Bianca Vlad, Tax Partner, Mazars Romania.

The events of the last year have shown us that tax authorities and taxpayers can mobilize very quickly to continue the digitization projects that until recently stagnated. We note NAFA’s initiative to implement good practices from the other EU Member States, which have already been included in the strategic plan published by the authorities for public debate. These are measures expected by the business environment, which aim to simplify both the collection of budgetary claims and how tax inspections are performed. These include more streamlined remote tax inspections, but also the standard SAF-T audit file, which will enable the electronic exchange of accounting and tax information between taxpayers and tax authorities. SAF-T is scheduled to enter into force on 1 January 2022 for large taxpayers, while between August and December 2021 it can be used on a voluntary basis. We understand that, for now, NAFA is working to update the list of large taxpayers, and therefore we recommend all companies to carefully monitor any updates to this list and to be prepared in advance to cope with the complexity of this new reporting system.