Greece Used Car Prices – “Registration” Tax Paradox
If you have been looking at used cars in Greece or looking into importing a used car into Greece you’ll see that both methods are crazily expensive. Let’s look at why the Greek government makes used cars so expensive and how they achieve the exact opposite of what they want to achieve.
The Logic – “Registration” Tax
Used cars in Greece are expensive because they are in short supply and because it’s expensive to import cars into Greece (because the Greek government charges a horrendously high “registration” tax).
The first problem, the short supply is entirely caused by the second problem, the sky high registration fees (tax).
The Greek government is aware that the registration tax is exorbitant but they say it needs to be this way.
Their logic is as follows.
“We need to make the importation of used cars into Greece massively expensive because if it was cheap Greece would become the dumping ground for crap and/or old used cars from throughout Europe.” – Paraphrasing
Does This “Logic” Make Sense?
Looking at the situation as it stands now with the registration tax.
Has it achieved the goal the government was trying to achieve?
Are the cars in Greece of equivalent standard or better, than the cars you see in other countries in Europe?
The answer to this question is 100% percent no.
Greece has the oldest car fleet in Europe. Not nearly the oldest, thee oldest. The average age of a car in Greece is 17 years.
Yet at the same time, the values of the used cars in Greece are the highest in Europe.
Is there be a connection between the stratospheric prices of used cars in Greece and the fact that the average age of cars in Greece are the oldest in Europe?
Yes, there is a connection and it is a direct connection.
- As I touched on above, used cars are expensive because supply is low.
- If old cars are expensive it makes them economical to repair. To give an example. A new engine costs 1000 Euro to buy and fit. If a twenty year old Citroen Saxo costs 3000 Euro, you won’t think twice about repairing the car (the situation in Greece). If on the other hand the car is worth 500 Euro, you may think it would be better to put that money towards buying a newer car (the situation in all other countries in Europe).
- And if old cars are economical to repair they will be used for longer.
It is a vicious circle. Placing a barrier on the import of used cars into Greece guarantees Greece will be home to the most expensive, oldest and worst condition vehicle fleet in Europe.
Going back to reasoning of the government.
The Greek government does not want to have the oldest, most beat up vehicle fleet in Europe.
Does placing barriers to import newer cars from the rest of Europe help?
Of course it doesn’t
The Greek government policy of restricting the import of used cars from Europe, increases the age of the average car in Greece above all those countries which do not place such restrictions on the import of used cars.
The Solution
What is the solution to this problem and what would be the side effects?
The most obvious solution would be to ditch the registration tax and make the importation of cars into Greece as easy and cheap as it is in the rest of the EU.
But what would be the side effects of this move?
More Cars On The Road
With the prices as high as they are now, I think it’s fair to say that for some people, buying a used car they could afford is too much of a gamble. They may have the money for a 25 year old car but logically speaking, the car is coming to the end of it’s life and unless they can repair the cars themselves it would probably be cheaper to buy a more expensive car (Which they can’t afford).
With lower used car prices, these people will be able to afford a newer car that has more life left in it. So more cars on the road.
Parking in Greek cities is already problematic. More cars on the road is going to make this problem even worse. At the moment many people are reluctant to pay for monthly parking, if the pain of looking for a parking space every day gets too much, there is going to be a growing demand for paid parking which will create business opportunities for off street parking.
Traffic congestion in Greece is arguably much lower than the rest of Europe (with their cheaper used cars), by making car cheaper, the congestion will increase, how much is hard to say.
Used Car Dealers
Used car dealers have stock which they have purchased at the current price levels. Eliminating the registration tax is going to slash the value of their inventory. This is going to hurt in the short term, 1-6 months but the upside is replacing that stock is also going to be cheaper. And arguably, if the stock is of better condition, it will create more sales turnover at dealers in the long term meaning higher profits. If there are plenty of nice cars available to buy at reasonable prices, people are not going to treasure the car they have so much and will be more willing to change their car more often.
New Car Dealers
For sure, we can expect the sales of new cars to go down. As it stands at the moment, the price of a three year old car versus a new car is so close that many people would prefer just to buy new.
When the price difference between nearly new cars and new cars opens, they demand for three old cars will increase at the expense of new car sales. I don’t see a long term benefit for new car dealers (although the registration tax affects new cars also so the price of new cars would come down also). The only way to maintain new car sales volumes is to increase the wealth of the population by having a more competitive economy. Many will argue that this needs to happen anyway, falling new car sales or not.
The reduced price of new cars will limit the pain for new car dealers, it won’t kill new car sales completely but ultimately I think it is healthier for people to be buying new cars because they can afford it, rather than being forced to pay inflated prices because of the import restrictions.
In Short – Greece Used Cars
The government’s policy on used car imports is creating precisely situation they claim they want to avoid.
Yes there will be some short term problems to eliminating the registration tax but in the long term, a lower cost and higher quality vehicle fleet in the country can only be a good thing for emissions, fuel economy as whole, vehicle running costs, vehicle safety and it will probably lead to more investment in the country be it better roads and/or more parking.
