EU FTA and LCT - effect on used prices?

[AlexB7RS4]

Wondering who else has been thinking of this. I'm guessing quite a few. 

With the EU free trade agreement being negotiated, a removal of the luxury car tax is likely as it's a cornerstone of the EUs list of demands and is no longer necessary to protect a local industry. The money seems to be on a staged approach at 33%>22%>11%>0 over 3 years. 

The effect on the used market will be interesting. The worst thing about the LCT is the tax on tax on tax - Ie LCT at 33% followed by GST at 10% followed by state taxes at 3% or thereabouts. 

A back of the napkin calc suggests a 911 Carrera T new at $262k driveaway (SA) could drop to $210k driveaway. Used cars are currently in the $220k range so one would expect they would lose equivalent values. I suspect the rare cars that are on allocation, like the GT cars, will hold steady. Thoughts?

[Zelrik911]

My guess is that our local elections will have more impact on car prices than LCT. If greens have a even a tiny bit of clout on either side, then they will declare war on Diesel & Petrol and scare people into electric cars/public transport - both are soulless options where you give up a level of independence to have bragging rights in their cult. Watch out to see if pressure is put on Finance Co's & Banks  to not finance "naughty' cars.

The number of people around where I live, that have had newish P Cars as weekend show-off cars, but have switched to Teslas is startling. OK, so these will all be on lease for 3 years only but people are losing interest in 'fast' cars because they kill polar bears!!!!!

As someone on this forum said: having a diesel will be equivalent to still smoking when everyone is tut-tutting you.

 

[Coastr]

People probably switching to Tesla because they are fast?  Very few Tesla owners I meet are full blown hair shirt greenies.Hopefully the general public will stop listening to their lunacy, but the trend has been stubborn for a few decades now so I wouldn’t hold my breath.  They dynamites ll the power stations and then complained when the reliability went down and the price went up, and then blamed evertjing else.

the LCT removal will drive down used prices a lot, and quickly.  It will also put a stake through sales in he first year.

Used values are entirely driven By substitutes - what else equivalent you can buy for the money.  When you can buy a new one for the money the old one drops fast.  But if you’re trading out at least the new one is cheaper to buy.

[LeeM]

1 hour ago, Zelrik911 said:

 have switched to Teslas is startling. OK, so these will all be on lease for 3 years only

  That would be a large percentage of most high end cars wouldnt it?  

[9r]

My thoughts on this are, IF they remove the LCT (and don’t replace it with some other tax or levy that hits us!) manufacturers will increase the specifications / standard equipment of the vehicle to roughly maintain the price of the car. With the cost of Porsche options this would not be that difficult and is as simple as say making something like extended leather and contrasting stitching standard on a base car, or they may drop a standard version of the car and only bring in the “S” variant. This has happened previously when import duties and tariffs have reduced or when the $AUD increased against other currencies. They do this to minimise new sales stopping leading up to the change in the tax. A side effect of this is it also protects used prices of newer used cars somewhat as well. 

[AlexB7RS4]

Interesting thought 9r. Many companies will be looking to protect their long term customers. However, LCT is different to FX - FX fluctuates up and down so it's a good way to absorb those fluctuations without saturating a used car market that makes it difficult to sell new cars if the change reverses. LCT is a once off cut - and a big one where luxury/sports cars are concerned. Big enough that many Cayman/M3 type customers could step to a 911.

Some car manufacturers and dealers may try to take a share of the margin left by the lack of taxes for a little while, but eventually the prices will drop as other manufacturers try to grab larger market shares by dropping prices.

[PDean]

Is it possible that dealers could behave like the banks. As in interest rates cut but not passed onto the customer. Dealers increase profit margin🤔

[AlexB7RS4]

Possible a few may try but unlikely to be sustained. All it takes is one dealer/manufacturer to pass them on to try and make higher sales numbers and nobody else makes sales. Agreeing amongst themselves to all stay high is illegal under Australian consumer law.

[Economistgt3]

This is interesting. First, were a small country so our demand for cars isn't going to change international prices for cars. With regards to new cars, prices will fall by nearly same amount as fall in luxury tax, dealers are kind of in a perfectly competitive environment. 

This will increase demand for new cars and decrease demand for the kind of old cars that depreciate (think regular 911). The reduction in price of used cars will be significant for newer cars than older ones as basically the reduction in price due t luxury tax removal will be less for cars that have significant depreciation rate (2006 Bentley continental will still cost around 70k at auction while the newer ones will be hit harder). A flat reduction of say 40k in the first year will be near zero after 10 years.

Collectible classics cars with a strong international rhd market will not experience any change in price as that price is internationally determined (look at prices at the Gosford lloyds auction). 

So if  I had a 2018 panamera and I thought luxury tax will disappear in a year and thought no ne else knows this,  I'd sell now to the ordinary punter who hasn't calculated the effects of tax reduction. If I had a 2000 gt3 I wouldn't care too much. 

Thing is, nice the reduction in tax is announced, prices will fall before the implementation due to rational expectations. 

The interesting thing is that a reduction in luxury tax on new cars may even increase the price of say a GT3 RS 997 (2010).  But not by much. 

[smit2100]

6 hours ago, Economistgt3 said:

This is interesting. First, were a small country so our demand for cars isn't going to change international prices for cars. With regards to new cars, prices will fall by nearly same amount as fall in luxury tax, dealers are kind of in a perfectly competitive environment. 

This will increase demand for new cars and decrease demand for the kind of old cars that depreciate (think regular 911). The reduction in price of used cars will be significant for newer cars than older ones as basically the reduction in price due t luxury tax removal will be less for cars that have significant depreciation rate (2006 Bentley continental will still cost around 70k at auction while the newer ones will be hit harder). A flat reduction of say 40k in the first year will be near zero after 10 years.

Collectible classics cars with a strong international rhd market will not experience any change in price as that price is internationally determined (look at prices at the Gosford lloyds auction). 

So if  I had a 2018 panamera and I thought luxury tax will disappear in a year and thought no ne else knows this,  I'd sell now to the ordinary punter who hasn't calculated the effects of tax reduction. If I had a 2000 gt3 I wouldn't care too much. 

Thing is, nice the reduction in tax is announced, prices will fall before the implementation due to rational expectations. 

The interesting thing is that a reduction in luxury tax on new cars may even increase the price of say a GT3 RS 997 (2010).  But not by much. 

Regarding Australia being small, EU free trade, cars and greenies, a couple of years ago I worked on / at probably the biggest chemistry set in the world.  The owners were the commercially screwd and savvy and could switch products depending on what market prices were doing.  At the time they were foward looking and doing their third major tweak to their chemistry set.  So  one section was looking at  gearing up to increasing  euro vi fuel production output among other products that greenies arent fans of.  Not convinced going foward, Oz are going to see some of these new Euro models land in the future at reduced pricing , particularly those euro models  that incorporate  particulate filters in their design as they are designed for euro 6 fuel (max of  10 ppm of sulfur) and oz fuels even 98 ain't cutting the  mustard ( third world country dirty levels)and far from euro 6 spec fuel.  98  will destroy  particulate filters in these euro models with engine performance being impacted and obviously ain't going to fly with dealers having to potentially replace particulate filters under  any warranty requirements. So euro brands just wont offer some of these low emission/ fuel efficient models ( oz market too small)  hence reducing the pool of models available.

In relation to greenies I am surprised the greenies haven't pushed for better fuel supply eg euro 6 spec in this interim period until electric takes over.    Or is it they are driving Tesla's and hybrids and walking the talk. Eg defacto uber drivers for these  vegan activists suppling ride share  services for free ( low emission ride sharing ) in going to and from  these farms and putting stolen  livestock on the backseat and no extra surge pricing fee.( boots are pretty small in those cars right?? ) Or are these vegans activists driving clapped out combi vans and wicked camper Van's that are blowing smoke for which greenies are giving them a one off  moral dispensation. ( less direct methane emissions)

Ps so do you reckon fossil fuel induced boosted p cars with last centuries tech and  a third pedal are going to nose dive.  They were about 340k new.  Remove 1/3 for Oct  10% for gst and and 1/3 for depreciation and that means 5 figures.  Plus  I'm invisaging there going to be useless for the new generation.  Eg  why  are their 6 numbers on that knob,  why do I have two places to rest my left foot and  how do I get it going backwards  out of the garage again. 

 

[LeeM]

  Do people really think the government removing the LCT will change prices of imported luxury cars? 😂

 They'll just rename it and charge the same, if not more tax, and/or the dealers will just keep the prices as they are, as they know people will buy them anyway. I'm an uneducated idiot, yet even I know they're not going to let go of millions of dollars in LCT revenue every year

[AlexB7RS4]

They won't let it go, they'll trade it in exchange for favourable taxes (ie none...) on Australian export goods.

Just look at the prices of these cars in other countries. A new GT3 in the UK is ~$180k. New M3 in the US is ~$100k. The only major difference is LCT.

The only reason it exists is to protect Holden & Ford from having to compete with a BMW 3 & 5 series. The only reason it isn't gone already is the govt makes huge money on it, and it's a tax on rich people only. Taxing rich people in Australia is popular with voters so it's a win-win. 

However it isn't good for the country. Australia philosophically supports a free market environment. The tax stops our people from buying cleaner, safer, more technologically advanced vehicles. Mercedes, BMW and Audi are lobbying the EU government hard for this as part of the FTA - it's a big deal for them to sell more cars.

Look here - front and centre (Page 2 - key recommendations - Goods) from the Australian side is removal of LCT and 5% import tariff. 

https://dfat.gov.au/trade/agreements/negotiations/aeufta/submissions/Documents/business-council-of-australia-eufta-submission.pdf

[Skidmarks]

1 hour ago, LeeM said:

  Do people really think the government removing the LCT will change prices of imported luxury cars? 😂

 They'll just rename it and charge the same, if not more tax, and/or the dealers will just keep the prices as they are, as they know people will buy them anyway. I'm an uneducated idiot, yet even I know they're not going to let go of millions of dollars in LCT revenue every year

If it’s “removed” its a Monty that it will be replaced.  The premise of LCT was a great load of BS in the first place.  Australia did not ever make ‘luxury’ cars.  The cut in point for LCT was generally above new car price of what was manufactured or sold here.  There was no “protection” of local manufacturing in play.  In any event, it didn’t work did it?   It is and always has been a source of revenue.  That’s OK - although as a frequent flyer in this space I’d rather it not be there.  That said, no one is going to bleed for those who play and buy in this space.  Nor should they.  The real issue is that the BS story used as a rationale to support the tax remains and to cover the revenue gap if forced to get rid of it, it will be replaced by something else.  It’s a tax on consumption so will be reinvented. It’s also good source of easy kanga for the government and immune from populist attack.  I mean, who’s going to hit the streets with placards saying  “tax my luxury car at your peril” and (deservedly) get anything less than a “pss off you w@nker”?

[firstone]

Very good point.

[Jason A]

Wasn’t GST supposed to lead to the phasing out of Stamp Duty on real estate 

We live in one of the most highly taxed countries in the world. If something goes in the tax space, something else will replace it.

[Coastr]

“ relation to greenies I am surprised the greenies haven't pushed for better fuel supply eg euro 6 spec in this interim period until electric takes over. “

it should be plainly obvious they are not interested in fixing anything, and have not been for a long time.  It’s about gaining power and nothing else. 

[JLD]

13 hours ago, Skidmarks said:

Australia did not ever make ‘luxury’ cars. 

You’re forgetting the Bogan Limo, the Holden Statesman 

[Skidmarks]

20 hours ago, JLD said:

You’re forgetting the Bogan Limo, the Holden Statesman 

Or the world famous Ford LTD.

[Coastr]

It’s correct that lct was not waived for the local luxury cars.  I think the original pricing was set somewhat arbitrarily above what a statesman cost in 93 or whenever it was, but bracket creep soon took care of that.   The biggest contributor to LCT is Toyota if I remember correctly.  All those Saharas and optioned up people movers pay LCT, and they sell a lot.