Car Sales
FBT: Post election
Now the Federal election is over and the Coalition have taken pole position, Tony Abbott’s declaration that the mooted changes to the Fringe Benefit Tax will not go ahead is now ready to be checked. And, seemingly, this is the case, according to a communique dated 3 September, four days before the election.
A letter sent to the Australian car industry, its employers and employees associated with it, appears to confirm the Coalition’s determination to not go ahead with any modifications to the Fringe Benefit Tax, as it stands; part of the letter states: “…we encourage all stakeholders, including employers and employees engaged in salary sacrifice programs, to urgently and immediately return to normal trading activity in order to repair the damage done….” and: “…we want to acknowledge the role the leasing and salary packaging industry plays in assisting with new car sales, generating demand and, therefore, generating jobs.”
With a marked and measurable slowdown in sales and yards full of cars that were ordered and cancelled, the car finance and leasing industries can look forward to a settling of the market and resume the trading levels experienced over the last couple of years. It also has to be said that the reaction of the car lease industry, with the changes not put into legislation and, for the most part, really only put forward as a change should Labor had won, could be seen as a huge overreaction and ultimately a back ended scare.
Since the change of government, car leasing firms have been rehiring people stood down prior to the election and interest in purchasing fleet vehicles has increased. Danny Wilson, from leasing company NLC said: “We started 23 people back at work this week and we’ll keep an eye on demand, and if that keeps getting stronger we’ll keep improving our staffing levels,” he said.”We saw sales start to return almost immediately after the election – even from the Monday or Tuesday.
”We’re below what we’re normally projected to be at this time but I think we’re trending towards that 75 to 80 per cent mark. In terms of the sales levels, it does take some time for those to work through your system, but in terms of our inquiry levels, we’re up to that 75 per cent mark.”
What has also come out of the change of government was this simple observation from Leigh Penberthy, the President of the Australian Salary Packaging Industry Association: ”With the Liberal government now in place, there is no new law to be passed because there were no changes made to the tax law,” he said. ”Effectively, it’s now pretty much as it was prior to July 16, and I guess the industry has got to get back on with business.”
Simple really; the expectation was that the Coalition would win plus there was no actual legislation put forward, voted upon and passed/denied by the government. Sadly, it has come at an industry cost with Falcon and Territory sales collapsing even further and this is being seen as a contributing factor to the company’s decision to close local manufacturing down. Regardless though, let’s hope it is a return to business as usual.
Car Industry Support: Who's Right?
It’s red face time at Holden, Toyota and Ford as it’s been revealed a secret report commissioned by Australia’s three remaining local car makers, intended to back their calls for extra funding, is contradicted by a report compiled by a company formed as a merger between the original company used and another. Allen Consulting Group was asked to look into how the automotive industry impacts here in Australia and found that a loss of $23 billion would hit the economy between 2018 and 2031 if all three closed shop, stating the loss would be far higher than the amount of funding supplied. Unfortunately for the companies, Allen Consulting merged with ACIL Tasman to form Allen ACIL and a report issued by them says that taxpayer backed funding should be withdrawn. It was stated that the support is effectively a tax on the rest of the economy whilst the more successful industries prop up the less successful.
Initially released in April of this year, the three car makers have had to commission a revised report, after benching the initial one at a cost of around $100, 000 dollars, with the findings now expected for later this year. So it begs the question; who is right? Are our car makers truly in need of continuing funding in such a competitive market (it’s said there’s over sixty manufacturers available in Australia) or would it be better to cut the losses and have them as mainly import only?
Extra Government Support For Australia's Car Industry…But…..
The FBT situation for Australia’s struggling local manufacturers hasn’t improved, even with the recent announcement of $200 million dollars going towards Ford, Holden and Toyota and a mere $7 million towards car suppliers, ignoring the areas that currently also needs assistance; the retail sector. The Victoria Automotive Chamber of Commerce has hit out against the Federal Government for ignoring the retail aspect, with brokers and suppliers feeling the backlash and laying off staff. VACC Executive Director David Purchase said “Our members are sick of so-called automotive industry discussions and decisions that fail to even consider the repair, service and retail sector. In this most recent example, the Federal Government has announced an automotive industry package, but failed to include the retail sector. The changes to the FBT system have hit car retailers hard and fast, with many experiencing cancelled orders and job losses. And yet, the Government’s response fails to even mention retailers, let alone compensate them.”
Mr Purchase also says that it’s pleasing the manufacturing and parts supply partners will be getting support and adds that nationally there’s 100, 000 small businesses employing 320, 000 and turning over $208 billion dollars, a significant contribution. There’s a measure of frustration as well, with Mr Purchase saying “Claims the FBT statutory formula produces a tax rort, that salary packaging companies have a business based only on a tax break, that only wealthy people take advantage of vehicle leasing or salary packaged cars, that the cars involved are luxury models and that the whole system needs cleaning up are all wrong. Clearly, the FBT changes are not about closing a tax loophole or tax rort. They are not about being even-handed. They are not about equity. The changes are all about raising revenue to fill serious budgetary holes and have been made without proper consultation and forethought.
Now that the election has been confirmed for September 7, it remains to be seen how much change will happen after that date and what damage to affected industries has been done.
The Big Price Rip Off Revealed
The Big Price Rip Off Revealed
The Aussie car buyer is being subjected to the biggest rip off in memory at car dealers’ showrooms if the following pricing chart reflects the truth!
It’s impossible to reach any other conclusion based on the figures we’ve gleaned from manufacturers’ web sites around the world.
Our survey of retail prices in Australia against cars of similar specification in the US and the UK show that, on average, we are paying at least 20 per cent too much for our new cars, and you can’t just blame the government’s high tax rates!
Whilst it is only a sample survey of selected makes and countries our price analysis depicts a very clear and compelling message to the Aussie motorist.
On the basis of the current value of the Australian dollar, most retail car prices could be drastically reduced and the manufacturer would still be making the same profits that he makes elsewhere in the world!
Why Do We Say This?
It’s pretty obvious if you study the chart below. We have selected a sample section of cars right across the price range and compared the selling price in Australia, the USA and the UK.
We have endeavoured to choose cars with similar specifications, but, of course, there will still be some differences so you should take the pricing as a guide only. Variations will occur depending on a number of factors including local taxes and delivery costs, but we don’t think that will make more than 5% difference on the prices quoted in most cases.
So let’s take a closer look at some of the statistics that we have gleaned from the chart. For the source of all these data, click here
• Adding all the prices together there is a 71% premium that the local buyer pays over his English counterpart. That premium leaps to 121% when compared to the USA.
• Even if we take out the expensive cars (which suffer a very high tax premium in Australia) we still see us suffering to the tune of 20% against the UK and 83% against the US.
• Economy cars have a closer price link, particularly those made in Asia. In some cases there is almost price parity, so good on you Toyota, Nissan and Mazda!
• More expensive cars get much more expensive! This is particularly true of Mercedes and BMW who seem able to charge so much more than their overseas colleagues, and, of course, you can see even clearer evidence of this with the exotic makes like Ferrari and Lamborghini.
Some Glaring Examples
We’ve applauded Toyota, Nissan and Mazda for close price alignment with their small cars, and we were impressed with Subaru’s pricing of their Forester and Outback models.
But now look at their sporty WRX STI. Here we see the poor Aussie car buyer is paying a 31% premium over the UK price and a massive 107% more than if he bought the same car on the USA. Why? Well, we asked Subaru Australia, and even they couldn’t give us an answer.
Now turn the spotlight on to Mercedes and its four wheel drive ML300. We pay a huge 47 per cent more than in the UK! You may think that it’s because the car is made in Europe- but it isn’t. It’s made in the USA, both versions are right hand drive with very similar specifications. OK, then, maybe it’s due the luxury car tax of 33%? Wrong again!
The luxury car tax for this car doesn’t cut in until the retail price (inc. GST) reaches $73, 375.00 and contributes only (?) $7341.69 towards the final RRP. Deduct this from our calculations and we still see a punishing premium of 35% against the UK and 97% against the USA recommended retail price.
So why is this so??
We asked a number of local players to offer reasons why there is such a disparity, and they all quoted pretty much the same answers:-
• “It’s the government’s fault with the taxes they impose”
Our Comment:-
Yes, but that is only partly true. There is a 10 percent import duty and 10% GST in Australia, but the GST in the UK (VAT) is 20% which is virtually the same.
• “The State governments get taxes too”
Our Comment:-
Again that is partly true as there is stamp duty on the purchase of a new car, but there are similar taxes (though not always as much) elsewhere.
• ‘Australian prices include third party insurance’
Yes, we agree. In the UK third party insurance is extra, which for basic cover could add $500 to the prices quoted in our comparison chart. The same applies for US vehicles. But if you add $500 to each price you still see a massive premium for Australian buyers.
• “The figures are exaggerated by the luxury tax component”
Our Comment:-
Yes that’s also true, but if you take the luxury tax off the figures for luxury cars there’s still a premium of 35% over the UK (and the Ferrari is still at least 45% more!)
• “Economies of scale work against us”
Our Comment:-
Now there we agree completely! A car dealer in the US deals with many more customers than here. That saves him money. The importer or manufacturer enjoys economies of scale too, but not to the degree reflected in the pricing, otherwise you would not see parity on any of the cars in the table.
• ‘Transport costs are higher’
Our Comment;-
Again there is some truth in this, but it only makes a difference of less than one percent in the final price – hardly a worthwhile justification. In some instances it also works against the Australian price premium as it costs more to send cars from Asia to Europe.
• “Australian Design Rules cost a lot to comply”
Our Comment:-
Many imports require little effort to comply, and therefore impose little extra costs. Some do require a lot and are therefore not usually imported.
• “It’s a short term aberration due to the strength of the Australian dollar”.
Our Comment:-
Yes, there’s some truth in this, too. We need stable prices, and do not want them to fluctuate daily with the currency market, and, indeed, when the dollar sank in the late nineties importers tried hard, and to their credit, to delay price increases. But the dollar has risen above these low rates and has been sustained as a strong currency for a long time now, so we are well overdue for some benefits from it.
None of these reasons amount to much in our view, certainly not enough to justify anything like a 71% premium.
Having heard all the excuses our take on the price differential is:-
1. Manufacturers and importers will charge the highest price they can expect to get.
2. They have not, in the main, reacted quickly enough to the strong Australian dollar.
3. ‘Perceived luxury’ means bigger margins.
4. The Australian car buyer seems happy to wear it.
So what can we do about it?
The internet is already doing favours to the Australian consumer. We are seeing more and more parity pricing, and the willingness of consumers to purchase from overseas. Whilst that is more difficult, if not impossible, to do with new vehicle purchases, it certainly helps in making people aware, and that increases pressure on manufacturers and importers to be more in line with overseas markets. Nobody likes the tag of ‘profiteering’.
We think this is a true rip off of the Australian motorist, so we want to make waves! We’ve created a Facebook Group, we are contacting the media and we’re enlisting your support. So let’s hear from you below, and join us on Facebook and help us bring the car makers into line!
Remember the more ‘digital signatures’ we can gather below and on our Facebook page, the greater difference we can make!
Level 2, 9 Help Street