Second-hand cars cost twice what they should
Second-hand cars cost twice as much as in New Zealand because of inexplicable import restrictions, writes Mark Ludlow.
Adelaide car retailer Kristian Appelt is not sure why the federal government has baulked at cutting the punitive import tariffs and red tape on the importation of second-hand cars.
At the moment, car retailers such as Appelt can only import single vehicles at a time – a bureaucratic and logistical nightmare. Under Australia’s archaic system, there is a $12,000 specific customs duty on second-hand vehicles.
Automotive workshops which help supply the car enthusiasts’ market are only allowed to bring in 100 used vehicles in each category in a 12-month period.
But he is sure what the policy will mean – higher car prices for consumers and a hard time for his industry. “It really is squeezing our side of the market out,” Appelt told AFR Weekend. “We’ve probably only got another five years before it it reaches a crunch point. Some guys have already closed up shop. I think it’s a real missed opportunity.”
While the Turnbull government this week endorsed most of the recommendations from the Harper review into competition policy, it brushed aside the issue of allowing so-called “parallel imports” of second-hand vehicles.
The decision to maintain the onerous restrictions on imports of second-hand cars is perplexing especially because in its formal response to the Harper review, the government gave the green-light to allowing parallel imports of books not licensed to Australia – a flashpoint for many in arts and literary circles.
It is also odd because with the closure of the car industry in the next two years there is less pressure to protect local manufacturers agains cheap imports.
Treasurer Scott Morrison did not mention reducing vehicle emissions as the reason for squibbing on progressively reducing parallel imports for used cars, but many in the used car sector and automotive workshop market believe it played a role.
With global climate talks starting in Paris on Monday, the federal government is starting a renewed push to reduce vehicle emissions which the Climate Change Authority estimated accounted for 10 per cent of Australia’s total carbon emissions.
But car importers point out that many of the used cars which would be imported from Europe or Asia have higher vehicle emission standards than Australia. The federal government is attempting to introduce new emission standards which are already in place in Europe.
The government has stressed concerns over safety of imported second-hand cars but it is not clear why they would be any more dangerous than local rattlers. In any case, vehicle certification can handle the risk.
Appelt runs his small company Auto Services Group in Adelaide’s northern suburbs, which imports cars from Japan and Europe, mostly for car enthusiasts. He says the Turnbull government’s response to the Harper review was a lost opportunity to bring much-needed competition into the used and new car market.
The review’s recommendations on the importation of second-hand vehicles, based on a comprehensive report by the Productivity Commission, were hardly revolutionary.
It recommended progressively relaxing parallel import restrictions, but not before 2018 when Australia’s domestic car manufacturing industry shuts down.
It also recommended scrapping the $12,000 customs excise straight away. The new import regime would be restricted to cars that are less than five years old and only from source countries what have vehicle design standards which are consistent with those in Australia.
Australian Imported Motor Vehicle Industry Association vice-president Ross Pendergast, who runs a vehicle certification business in Sydney, says a move to scrap parallel imports would benefit consumers of both new and used cars through lower prices.
AIMVIA predicts the move would save up to $20,000 on cars in the lower, more competitive end of the market like a Toyota Corolla or Hyundai Excel and up to $60,000 for a top-end luxury car such as Mercedes Benz C-Class or BMW X5.
At the moment, a Porsche 911 Turbo costs about $445,000 in Australia, while you can pick one up in the UK for $256,000. Parallel imports would also dramatically increase the number of models available in Australia.
“If we had the ability to parallel import into Australia there would rapidly become global pricing in Australia,” Pendergast says. “The new car sector would have to match the price of other markets, otherwise people would source the vehicles in the cheapest market they can.”
In Australia there are about 1 million new car sales each year, with about half of those in government or private fleets. The used car market is substantially larger with about 4.5 million sold each year.
The Productivity Commission pointed to the New Zealand experience where restrictions on parallel imports were abolished 25 years ago. While it used to be unlimited, it has been tightened in recent years to help lower emissions by focusing on cars made after 2007.
“We are paying a lot more for cars in Australia in a market five times the size of New Zealand. It’s a silly situation,” Pendergast says.
It appears the government has caved in to the existing car sales industry which lobbied the federal government hard over scrapping the import restrictions. A compromise plan proposed by then Assistant Treasurer Jamie Briggs for lowering parallel import restrictions for cars 12 months old or less also ended up in the scrap heap.
Sydney-based car importer Jack Sandher from Top Secret Imports, who is also president of the Australian Imported Motor Vehicle Industry Association, says the used car industry would have accepted the 12-month old compromise deal to get things moving.
“The 12 months would have been a good starting point, but we would want it open slather,” he says. “Our aim is for the government to gradually open up the import market for second-hand cars.”
“In two years from now we will no longer have the big three car manufacturers left in Australia, so will require some sort of vehicles brought into the country. Why should the big end of town be allowed to do that but not small business [in the used car market]?”
The powerful Federal Chamber of Automotive Industries raised road safety and the environment in their objections to any proposed changes, as did car manufacturer Ford.
“Modern vehicles are demonstrably safer and more environmentally friendly. This is in start contrast to allowing greater market access to the importation of questionable, second-hand ‘grey’ vehicles that have been cast off by other advanced economies,” it said in its submission to the Harper review.
But the used car industry says any concerns about vehicle safety and standards could be easily overcome. They also say the introduction of cheaper cars into the market would allow companies or government to retire older fleet vehicles earlier and reduce emissions.
Pendergast says the environmental or fears over higher vehicle emissions was a part of the federal government’s decision to not cut import restrictions.
Used car dealers such as Appelt and Sandher point the finger of blame at the big industry bodies for the new car market, such as the Australian Motor Industry Federation and the Federal Chamber of Automotive Industries, for flexing their political muscle to protect their monopolies.
But Australian Automotive Dealer Association director Ian Field says the government made the right decision.
“I don’t see why Australia should be a dumping ground for used cars,” he says. “The problem is, if it was allowed, everyone’s current car values would be dragged down with excess stock in the market.”
Other big players such as Mercedes claim it would be harder to carry out public safety recalls if more imported second-hand cars were allowed into the market.
The fact a major global car maker, Volkswagen, can be embroiled in a fraud to alter the emission standards of its cars is conveniently overlooked in this argument.
Major Projects Minister Paul Fletcher played down the impact of environmental issues in rejecting parallel imports of used vehicles but conceded vehicle emissions were a problem in lowering the nation’s carbon footprint.
“The arguments were made [by the new car sector] but the fact that weighed most heavily to not pursue the parallel importation of used vehicles was the question on the impact of safety,” Fletcher told AFR Weekend.
“But there is no doubt vehicle emissions are a significant proportion of carbon emissions vehicle emissions.”
Fletcher, Environment Minister Greg Hunt and Resources Minister Josh Frydenberg have created a ministerial forum to focus on lifting vehicle standards. The working group will focus on the implementation of Euro6, fuel quality standards, fuel efficiency measures for light vehicles and emission-testing arrangements.
“We don’t have the same levels of smog pollution in Australia that other countries face. Nevertheless, we must work hard to keep our air clean and reduce carbon emissions that contribute to climate change by ensuring our new vehicles meet world’s best standards,” Fletcher says.
The used car industry is hopeful that with the ongoing review of the Motor Vehicle Standards Act the government remains open to the idea of easing import restrictions, but Fletcher says the Harper review made the Turnbull’s position pretty clear on the issue.