Why Australians pay too much for cars

When it comes to buying a new car, you're better off being American
Stephen Corby
Contributing Journalist
CarsGuide

10 May 2017 • 11 min read

The idea that you live in a place referred to as Treasure Island sounds exciting and glamorous, but the fact that this is the name given to Australia by many multi-nationals who can’t believe how much more we’re willing to pay for things - from jeans, to shoes, to songs, to cars - than other countries is actually deeply depressing.

When it comes to the motoring industry, and the vexed question of why Australians pay too much for cars, you’ll find there are various answers, and plenty of people on the car company side who will tell you our prices are actually very cheap, on a global scale.

What the vehicle manufacturers really don’t like you to do - and which used to be so much harder pre-Google - is to compare the cost of cars in the US to the price we’re paying here, because it quickly becomes clear that good cars - sporty, premium-brand stuff - cost a good deal more in Australia.

According to CarandDriver.com, Americans can get into a BMW M3 for as little as US$64,995 ($88,368), an Audi S4 for US$51,875 ($70,524), or an Alfa Romeo Giulia Quadrifoglio for US$73,595 ($100,045).

There’s not much doubt, however, that more expensive cars - the very top end of the market - are more expensive here than elsewhere.

If those prices sound pretty enticing, it’s because they are, compared to the Australian entry-level stickers of $139,615 for the M3, the Audi S4 at $99,900, or the Alfa Romeo Giulia Quadrifoglio (Verde) at $143,900.

What really stings, though, and makes you think it would be worth putting up with having even Homer Simpson as president just to live there, is the price of Porsches. Those lucky Yanks can have a new Cayman on their driveway for US$53,650 ($72,934), while our entry-level price is $110,000.

The idea of owning the ultimate driver’s machine, a Porsche 911, seems less unobtainium in the US, too, with an entry-point of just US$84,000 ($114,208). The cheapest new 911 in Australia is a base Carrera at $217,500.

To be fair, just about everything is cheaper in the US, and they sell a lot more cars, which means they have different economies of scale, but those cost differentials are still stark.

Ask any industry spokesperson about them and they will be at pains to point out that our tax system makes our list prices a lot higher, and that our imported luxury cars tend to come with much higher levels of specification than the base models sold in America.

What we don’t know, and what the car companies will never tell us, is how much profit per unit the Australian arms of these businesses are making compared to their cousins in the US and Europe. Are we being plundered, like some treasure island, or are we getting a fair deal, in global terms?

How much of the extra we pay is tax?

In 2015, Australian authorities raked in more than $6.5 billion in taxes, stamp duty and other charges from the sale of more than 1.15 million cars.
 
It is estimated that around 20 per cent of the cost you are paying for a new car finds its way into government coffers.

Part of that is the GST, but there are also import tariffs on cars from certain countries, and then there’s the very special Luxury Car Tax, which we’ve been paying great wads of since 2000, despite the fact that other luxury vehicles - like yachts and helicopters - are not similarly taxed.

Ask any industry spokesperson about them and they will be at pains to point out that our tax system makes our list prices a lot higher.

The LCT applies to new cars priced over $60,316 (yes, it does seem a very random, and slightly low, price to define as 'luxury'). However, it only kicks in at $75,375 if your luxury car is fuel efficient; defined as consuming less than a claimed 7.0L/100km on the combined cycle.

So, for every dollar your car costs you above those amounts, you pay a 33 per cent tax to the Federal Government, which must make them almost as happy as it makes the luxury importers unhappy.

Porsche once told us that the reason it didn’t sell its wondrous and mental 918 track car for the road here is that when it told keen customers the price, they just couldn’t come at the idea of paying $300,000 of the $1m sticker to the government.

If that wasn’t more than enough, you also get to pay the government money in the form of stamp duty and registration, in short, all that other stuff that makes up 'on-road costs' with your new car.

So are all our cars more expensive than overseas?

It depends on who you believe, and what sort of car you’re looking at.

A 2015 report by Deutsche Bank, 'Mapping the World’s Prices', which found that Australia was the most expensive place on Earth to live (taking into account car prices, among other things), found that a new VW Golf would cost you $34,000 here, compared to $23,000 in Tokyo. Which used to be the most expensive place on Earth.

Those figures were heartily refuted by the local industry, which said they were not comparing lemons with lemons, or similarly specified Golfs.

More research from 2015, however, conducted by Commsec, found that Australian car prices were very competitive when compared 'like for like' with other right-hand drive markets.

There probably hasn't been a better time to buy a new car, at least not in the past 40 years.

According to the report, an Australian earning the average wage would have had to work for 24.2 weeks to purchase a new Ford Falcon, which was the best (ie lowest number of weeks) figure since 1975.
 
"There probably hasn't been a better time to buy a new car, at least not in the past 40 years," Commsec analyst Craig James said.

"That explains why more Aussies are opting for generally costlier four-wheel drive or sports utility vehicles in preference to traditional passenger cars. And why sales of luxury cars are at record highs.

“The ABS stats tell us that clothing, footwear, small electrical items, computers and TVs are also cheaper now than they were 20 years ago.

“If you look at the features of a modern car, and the safety, you’re getting even greater value than the figures suggest, whereas a kettle back then was similar to one now.”

The FCAI (Federal Chamber of Automotive Industries) has been espousing the virtues of some detailed research carried out by Auto Express in the UK.

In an exhaustive piece published late last year and titled, 'Car running costs: how much does it cost to run a car around the world?', the magazine looked at 11 countries including the UK, Japan, UAE, Germany, Russia, South Africa, the US, Venezuela, India, Brazil and Australia, using a VW Golf 1.4 as the benchmark car.

Of all the markets, India was the cheapest, with a price of $15,195, followed by Russia ($25,916) and, in third place, Australia at $25,925.

In May last year, a report by GoAuto similarly found that Australia has the lowest right-hand drive car prices in the world, using a system of comparison devised by The Economist.
 
The Chief Executive of the FCAI, Tony Weber, said that the Auto Express report offered further confirmation that Australia’s new car market is one of the most competitive in the world.

There’s not much doubt, however, that more expensive cars - the very top end of the market - are more expensive here than elsewhere, but car company insiders claim that premium comes down to the comparatively small market for those vehicles, and thus a lack of competition at the higher end.

Perhaps we need to start driving on the other side of the road.

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