Import Tariffs

Logic says cars must be cheaper by January 1 next year so hold off and reap the savings. But the Australian new car market is one of the most fluid and dynamic of any free market in Australia. Tariff changes are a relatively tiny part of the big picture that will influence what you pay for a new car at any given time. When buying any new car, there are two prices: the recommended retail or sticker price and the transactional price which is the price you actually pay.

The transactional price will change according to dealer and factory stock situations, factory incentives and bonuses to keep the factory working, runout or cashback pricing for a superseded model, currency fluctuations, the value of your trade-in, the time that the new vehicle has been in stock, pressures from rival dealers and pricing pressures from rival models. These can change on a week by week basis, independently of any duty cuts and can affect a price by thousands.

There is every chance that the sticker price of some new cars will drop after January 1 but the transactional price could stay the same or even increase under factory price rises that are usually applied from January 1. If you are one of those rare buyers who walks into a showroom, asks how much, then writes out a cheque without further negotiating, then you might be better off waiting. But it would only take a significant drop in the exchange rate and all bets are off.

If you enjoy a good haggle, the period between now and January 1 is one of your best chances of snaring a bargain as factories and dealers are desperate to maintain sales momentum in the lead-up to the cut in duty.

The cut only applies to passenger cars, not those Sports Utility Vehicles (SUVs) that qualify as a four wheel drive. These vehicles such as the Subaru Forester, BMW X5 and similar, already carry only 5 per cent duty under anomalies originally intended to help primary producers. Because cheaper cars will impact on SUV sales, extra incentives are appearing here as well.

If a car company with the support of its dealers offers free air-cond or free auto or free on road costs that would normally cost you an extra $2,000, you can't match a saving of this magnitude from the impending cut in duty, this side of $30,000. As the price goes up, so do the incentives.

There are other factors at work. There has been a rush of new models and facelifts exhibited at the recent Sydney Motor Show, many of which are going on sale right now ready for the 2005 model year. There is a good reason for this. If all the new models went on sale on January 1, new car buyers would stop buying from around September of the previous year and wait.

In a year where the import duty drops, manufacturers cannot offer a new model for sale in November and December and suddenly drop the price on January 1 without a massive loss of goodwill. They also have to contain price cuts over the longer term to avoid killing resale and one of the ways of doing that is to offer extra features at no cost. Most new models have already been released at 2005 prices and typically, most boast extra features without an increase in price.

One of the most graphic examples include the stunning new Holden Astra which is a bigger and much safer car than the previous model but is already priced up to $1000 below what the old model cost back in 1998. The old Astra is still on sale as a new car but is priced almost $3,000 less than it cost in 1998 to create space for the new one.

Because locally built cars have to compete with cut price imports, the VZ Commodore with its all new engines and transmissions came with a pricetag that doesn't reflect the big improvements. The latest VZ Monaro CV8 which has just been given thousands of dollars worth of improvements in engine, transmissions, brakes, cabin features, body additions, exhaust and safety technology is almost the same price as the previous model as it squares up against keenly priced imports. The latest Ford models are showing similar feature gains for little or no increase in price.

This is the rub. If manufacturers are already adding extra features or footing the bill for new models, popular options and on road costs to keep buyers keen in the lead-up to an imminent duty cut, what are they going to do when they have to clear remaining 2003 and 2004 stocks for the New Year?

The closing stages of 2004 could prove to be one of the best times ever to buy a new car as anticipated duty savings have already been passed on in most cases in the form of lower prices or added features. From now on, the usual incentives to clear 2003 and 2004 plated cars before the New Year will kick in on top of these to make doubly sure that stock is cleared.

There are signs that this double whammy in cuts is already developing into a sales frenzy as potentially the best year on record leaves a little extra in the war chest of most companies to finish the year with a bang.

If you are trading in a car, consider that the used market takes a month or two to catch up with a big drop in new car prices. By January 1, your used car may have dropped in value far more than any duty cut.

If you have a car popular with young drivers, the period before Christmas can be a good time to sell as most parents of teenagers delay the purchase of a first car until their last exams are finished. This buyer group usually floods the used market when used stocks are at their lowest, forcing prices up.

A survey of manufacturers and distributors revealed two common themes. The current new market is under far greater pressure than just the coming duty cuts. Already the price point for a small car has dropped to $18,990 with more to come as clearance incentives kick in.

The light car market is hovering around the $12-13,000 range with more incentives appearing, going into December. The Australian family car price point is now well under $30,000 with generous clearance incentives on a variety of 2003 and 2004 plated cars.

Up higher, most manufacturers have already added extra airbags, leather trim, metallic paint, DVD, SatNav and a variety of other features at no extra cost. Yet there are still further savings to be had if you go in hard and haggle.

Some of the most recent advertised incentives include the following (and there could be more to be had if you are ready to sign on the dotted line). Look for the words "demo" or "demonstrator" as some dealers won't advertise the price cuts on a new car but will often give you their "demo" price on a new one, if you are serious.

Alfa Spider: $49,990 driveaway ($55,000 retail)
Ford Focus: $3600 of extra value
Hyundai Sonata/Elantra: Free auto
Hyundai Accent/Getz: $1000 free fuel
Jeep Cherokee Navigator: $3500 free extras
Holden VYII Commodores (superseded): up to $7,000 off
Peugeot 307: Huge factory bonuses on '03 stock
Land Rover Discovery Classic (superseded): $5000 extra features
Rover: Free extra features depending on model
Honda: Extra features
Mitsubishi Lancer: free alloys, cruise, power windows
Misubishi Outlander: $1,000 free fuel
Mitsubishi Magna: Numerous incentives
Renault Megane: Free reg and stamp duty
Renault Scenic (superseded): $7,000 cashback
Subaru Forester: $3000 extras for $500 plus free on roads
Toyota Echo: $1000 off
Toyota Camry (superseded): $4500 off
VW Golf and Polo: Incentives on "demos"

Note: These applied in Victoria only on November 6, 2004 and may no longer be available. Check your local newspapers and shop around.
Wildcard: Free trade agreements with Thailand and US if ratified in time will also apply from January 1, 2005. This could affect most imported light commercials built in Thailand. It could also affect certain Ford, Chrysler and Jeep models.

Other things to consider...
It helps if you know what the cut in duty is worth. If a car lands at a nominal $10,000, today's duty will add $1500 for a total of $11,500. For the purpose of this exercise let's call this the landed cost.

After January 1, the same $10,000 car will cost attract $1,000 duty for a total of $11,000 landed cost. The cut in duty therefore equates to $500. If we apply GST to the landed cost the saving is in fact $550. (Note: this is NOT how final sticker prices are calculated but serves to highlight how a change in duty also affects GST payable. Even at $50,000, it will still deliver a saving of only $2750.

Because the luxury tax kicks in after $57,000 (approx. figures), the reduction in luxury tax is only 25 per cent of the duty-inclusive price over $57,000. For example, a car that lands in 2004 at $60,000 will attract $9,000 of duty for a total of $69,000. It will then attract 25 per cent luxury tax on $12,000 ($69,000-$57,000) or $3,000 for a total of $72,000. Add GST and the car reaches you at $79,200.

From January 1, 2005, the same car will cost $66,000 including duty plus 25 per cent of $9,000 luxury tax or $2250 for a total of $68,250. Add GST and the 2005 price is $75,075.

At this level, at the close of the year, there is something wrong if you can't get at least $4000 worth of extras or discount if the manufacturer has not already passed on the saving. Companies like Mercedes-Benz where resale is critical, have already applied these cuts on new models by not increasing the price and adding extra features to other models.

Variables such as the importer, dealer and distributor margins and other costs are not included in the above sample calculations. These variables allow the car distribution and sales channels to 'soften' the transition from one duty regime to another.