LCT battle enters final phase

TOYOTA and Ford will put the Australian car industry’s final arguments against the federal government’s proposed rise in the luxury car tax (LCT), from 25 to 33 per cent, to the Senate Standing Committee on Economics in Melbourne tomorrow (August 6).

The final presentations follow submissions by the Federal Chamber of Automotive Industries (FCAI) to the committee in Adelaide on July 21 and from Audi in Sydney on July 31.

The Senate committee is charged with assessing the validity of changes made to the LCT as part of the federal budget announced by treasurer Wayne Swan in May. Its findings won’t be known until August 26, at the earliest.

Presented by managing director Joerg Hofmann, Audi Australia’s comprehensive submission outlined the company’s opposition to the higher tax take proposal, as well as the LCT itself, on the basis of potential job losses and reduced sales of ‘green’ and safe luxury cars in Australia.

Mr Hofmann said the proposed LCT hike will: reduce Audi sales over next four years by 20 per cent or 6695 vehicles, reduce government revenue (in the form of GST, LCT and stamp duty) by an estimated $123.8 million over four years and reduce “profit opportunity” by $127.2 million over four years.

Mr Hofmann said that higher car prices contribute to Australia’s ageing carpark as consumers shun newer, more advanced vehicles. He said that of the 13 million vehicles on Australian roads more than 5.5 million are 11 to 20 years old, compared with the average age in Germany of seven to eight years.

Audi says the proposed LCT constitutes a 33 per cent tax on “clean technology”, which could also reduce standard safety technology in vehicles (such as airbags and rear-view cameras) as companies attempt to keep prices lower, as well as lead to substantial importer/dealer job reductions and lower investments, including dealer facility upgrades.

The latter was a key component of Mr Hofmann’s presentation, in which he said 100 people worked directly for Audi Australia, in addition to 1000 dealer staff, while Audi plans to generate a further 280 jobs by 2010 as it invests $50 million in new corporate headquarters, $40 million in annual marketing costs and $15 million annually in salaries and administration.

Five alternatives have been put to the Senate committee by Audi, presumably in preferential order: abolish the LCT altogether increase the LCT threshold from the current figure of $57,180 to an indexed figure of $95,500 maintain the previous 25 per cent LCT legislation and implement the LCT changes without charging tax-payers retrospectively (from July 1).

Audi, which along with Volvo and Alfa Romeo, was one of the first luxury car brands to announce it would absorb the proposed eight per cent LCT rate rise from July 1 until the legislation is clarified and becomes effective law, also proposed that customers who ordered cars prior to the May budget, but didn’t take delivery of the vehicles prior to the July 1 implementation date, be “price-protected”.

Audi said it plans to sell 45,820 vehicles in Australia over the next four years, 73 per cent of which will be priced over the LCT threshold, and added that by 2030 some 50 per cent of all cars sold in Australia will exceed it.

It says that its mid-term (four-year) sales forecast will drop by 6695 vehicles to 39,125 as a result of the higher LCT rate, representing a 20 per cent sales reduction, and that sales in July were expected to drop by 25 per cent compared with Audi’s sales rate in the first six months of this year.

Despite boom sales for all luxury brands in June as buyers brought forward their purchases to beat the retrospective LCT rate hike, there was no clear trend toward the significant sales slump that many expected in July.

Alfa Romeo’s July sales were down 39.4 per cent on the same month last year, while Aston Martin was down 69.2 per cent, Bentley was down 83.3 per cent, BMW was down 6.1 per cent, Lexus was down 33.4 per cent and Porsche was down 18.3 per cent.

Luxury brands that sold more vehicles last month than in July 2007 included Jaguar (up 71.1 per cent), Ferrari (up 37.5 per cent), Mercedes-Benz (up 11.4 per cent), Maserati (up 7.7 per cent) and Audi, which was up 21.6 per cent in July and remains 31.9 per cent up for the year.

However, the FCAI has released figures which show that sales of vehicles in the luxury segments (including medium cars over $60,000, large cars over $70,000, all upper large cars, people-movers over $55,000, sports cars over $80,000, luxury SUVs and large SUVs) fell by 33 per cent in July, compared to June.

The FCAI figures show that after spiking at more than 8000 in June, sales of “luxury segment” vehicles fell heavily, to below 6000 in July. As a result, the 2008 sales rate of so-called luxury cars has fallen from a level that exceeded the record sales posted in 2007, to below last year’s levels.

“The proposed tax hike has had a devastating impact on new car sales,” said FCAI chief executive Andrew McKellar.

“It is clear that the downturn has been exacerbated by the impact of this unfair tax hike, and the industry has significant concerns that orders will continue to be affected in coming months.

“If this situation continues, the government will not receive the additional revenue it had projected and there is a real risk that it will cost jobs.

“In these circumstances, one would have to question why the government would pursue this tax increase,” said Mr McKellar.

Read more:

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Luxury tax backlash

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