Why Free Trade deals will make some cars cheaper and not others

The 5 per cent cut in import tariffs on cars from Japan and South Korea will trim rather than slash prices -- and you’ll likely get more for your money.

The import tariff on Japanese and South Korean cars will be completely removed from January 15 - bringing potential price cuts to almost half of all cars imported into Australia.

However, the industry has warned buyers not to expect massive savings - cuts will be most likely between $250 and $1000 - because the 5 per cent tariff was on the landed cost of the car, not the higher recommended retail price.

Minister for Trade and Investment Andrew Robb claims there will be savings of up to $7630 on some Toyotas as 'an example of the real impact that families will see from these agreements ... for Toyota's biggest-selling models".

Don't get too excited. Toyota's biggest-selling model, the Corolla, drops by between $500 and $1050.

Don't get too excited. Toyota's biggest-selling model, the Corolla, drops by between $500 and $1050.

The $7630 applies to the Prado Kakadu, which drops from $92,120 to $84,490. But only part of the price cut is due to the 5 per cent duty reduction.

A Toyota spokesman says 'in some cases we've passed on more than the duty saving".

Japanese brands Mazda and Subaru also trimmed prices but don't expect similar savings on South Korean-made vehicles sold by Holden, Kia or Hyundai, as all three have resisted moves to follow suit.

Kia spokesman Kevin Hepworth says the company will scrap price increases it had planned for January and look at adding features. 'As new models arrive they may have additional equipment," he says.

Hyundai will introduce extra equipment but the currency gap between the Korean won and the yen will make it more difficult to introduce significant savings. So far, Holden has also resisted price cuts on the Korean-made Captiva, Barina, Cruze wagon and Malibu.

The Japanese Free Trade Agreement due to come into effect on January 15 follows the deal with South Korea from December 15.

The deals are estimated to affect about 460,000 cars this year;. Toyota alone expects the changes will make about 100,000 of its cars cheaper.

'Traditionally Toyota would have implemented the price reductions at the same time as the cuts to import duty start to apply," says Toyota sales and marketing chief Tony Cramb.

'Instead, with the support of our dealers, Toyota has brought forward these price cuts to the start of the year." Three low-volume cars also will gain extra equipment.

Some cars with Japanese and South Korean badges will have no new savings because they are made in countries such as Thailand (which signed free trade agreements with Australia in 2005), the US (agreements signed in 2010) or India (which has no agreement with Australia).

Price cuts are expected on the Japanese-built Toyota Yaris, Prius and Corolla hatch, among other models. But prices will remain steady for the Corolla sedan and HiLux built from Thailand and the Kluger SUV manufactured in the US because of the existing deals.

Mazda has trimmed prices on all Mazda3, Mazda6, CX-5 and CX-9 vehicles, from $268 to $963 on vehicles which range in price from $20,000 to $50,000. But its cheapest car, the Mazda2, and the BT-50 ute will not get price cuts as they come from Thailand.

Likewise most Hondas sold in Australia today come from Thailand. Meanwhile Subaru cut prices of some models by between $500 and $1000. The car industry has warned buyers that exchange rate fluctuations have had a bigger impact on prices than the tariff.

'The Australian dollar has moved by 60 per cent over the past 10 years but car prices have remained relatively stable," says one industry insider.'Car makers ride the currency wave, plus you have the impact of the devalued Japanese yen. That has a bigger impact on (pricing) than the removal of the tariff."