Bold Volvo counters tax trap

VOLVO Car Australia has pre-empted an anticipated market slump in the lead-up to the Goods and Services Tax (GST) by adjusting its prices to the proposed GST level immediately.

The bold move sees pricing of its models drop by between $3000 and $4000 across the range.

Consequently, Volvo's entry level S40 2.0 sedan now costs $42,692, compared with $45,450 previously, while the range- topping S80 T6 SE is priced at $95,938 (formerly $99,950).

A market slump has been forecast for some time by industry analysts who say car buyers will postpone their purchase until the GST is introduced.

The introduction of the new tax on July 1, 2000, will result in the 22 per cent wholesale tax presently applicable to passenger cars being replaced by a 10 per cent GST.

In real terms, it could mean a price reduction of around 6 per cent on vehicles below the luxury tax threshold and $4000 above that level.

Volvo's initiative is likely to cause waves in the industry, even though rival companies have vowed not to follow suit.

Volvo Car Australia public relations manager Mr Graeme Adam denies the company is out of step with the industry, saying other car manufacturers have also voiced fears of a pre-GST sales slump.

"Unless car companies take a stand or the Government reduces the 22 per cent wholesale tax, all hell will break loose in dealerships," Mr Adam said.

"There will be a lot bargaining and negotiating as savvy buyers will know dealers have to sell. Trade-in values will be pushed down as a result.

"We would have preferred it if the Government introduced tax concessions immediately, but seeing as they haven't we've done it ourselves." Mr Adam quashed suggestions Volvo had done a secret deal with the Federal Government to effect the price cut.

The cost of the price cut will be borne by Volvo Car Australia and its dealers, Mr Adam said.

Volvo sales have declined in 1999 with just 1262 cars sold until the end of May, compared with 1495 for the same period last year.

The price reduction may help to at least restore sales to their former level, if not result in growth.

Meanwhile, a spokeswoman for Federal Industry Minister Senator Nick Minchin has been quoted as saying the Government will monitor new car sales to see whether the wholesale tax needs to be lowered in the interim to the GST's introduction.

Ford president Mr Geoff Polites is among those calling for the Government to reduce taxes to avert a slump in car sales.