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FBT fears, election rumbles hit car sales

Downward: Preliminary figures suggest sales of Ford's locally-made Territory took a hit last month.

Preliminary sales data shows some car-makers are doing it tough

General News logo3 Sep 2013

PARTS of Australia’s new-car industry are tapping the brakes as pre-election uncertainty about the federal government’s proposed changes to fringe benefits tax start to bite.

However, while parts of the industry are mired in doom and gloom, others are seeing the benefits of a shift in the way buyers and dealerships connect.

Preliminary figures seen by GoAuto ahead of tomorrow’s official release of VFACTS sales data for August suggest some brands are struggling in the wake of changes that make it more expensive for workers to salary sacrifice or lease a vehicle.

With total industry sales believed to be down 2.2 per cent for the month, some brands, such as Mazda, are continuing to post strong results while others, particularly those that rely heavily on vehicle lease sales, are taking a hit.

The federal election campaign is also believed to be keeping buyers away from showrooms temporarily.

Ford, which slammed the proposed changes that almost switched off the novated leasing industry overnight, has again been hit hard with Falcon sales falling to another record low, and Territory sales slumping as renewing leaseholders shy away from dealerships.

Ford’s decision to pull out of manufacturing in Australia in 2016 is also likely to be a factor in the ongoing sales decline of its locally built models.

Falcon sales for August are expected to bottom out to about 570 units – the large family car’s worst month on record – while the Territory SUV is expected to post a figure of about 830 sales – almost half the number it sold in only two months earlier, and well below rival Holden’s 1250 sales for its rival Korean-made Captiva7.

Ford Australia communications and public affairs director Sinead Phipps said the fall in sales was in line with what the car-maker had predicted back when the FBT changes were announced in mid July.

“We anticipated a significant slowdown, which we saw in July, and that we expected and anticipated to continue into August and September once we got past the election,” Ms Phipps said.

“That did occur, so as you know we had previously taken changes to our production in August and September to allow for that, and I think the resulting figures for the industry in August show that we took the right measures.” She said it was clear buyers were waiting for the result of the federal election before making a buying decision.

She said Ford did not have “any more days planned” of factory downtime beyond the 12 days it had already slated across August and September.

“We will wait and see as we move through September whether we need to do anything more later in the year, but at this stage we don’t have any more planned,” she said.

The numbers also appear to be stacking up against Japanese brand Nissan, with small-car staples such as the Micra (about 270 units) and Pulsar (880), and even its X-Trail compact SUV (590), suffering big slides when compared with the previous month.

However, while there is likely to be pain for some, for others it is business as usual.

Mazda Australia senior manager of public relations Steve Maciver said the Japanese car-maker had experienced an “extremely strong” August thanks to a much smaller reliance on leasing deals struck via its dealer network.

Its annual stock run-out, held in August each year, is believed to have pushed the Mazda3 small car above 4100 sales for the month, enough to claim the title of Australia’s favourite car in August ahead of Toyota’s Corolla with about 3600 sales and the Toyota HiLux and a resurgent Holden Commodore, both of which managed around 2800 sales.

According to Mazda, the strong result was also down to its low reliance on lease and fleet sales.

“Our business model focuses on private buyers or the small business buyer who is a user-chooser, who essentially is the person who makes a decision as to what car they want to buy,” Mr Maciver said.

“With that in mind, we do expect that we will see a bit of a hit from the speculation around FBT legislation coming in.

“What we do think, however, is that the effect on our business isn’t going to be as great as the impact on other companies who rely more on fleet sales.” Mr Maciver said Mazda expected that the industry “as a whole” would take a sales hit in August as a result of novated lease buyers pulling out of the market, although it was still too early to see what the effect would be on Mazda’s sales, he said.

Mercedes-Benz, meanwhile, had tipped that the proposed changes would eat into about 5 per cent of its business.

Mercedes-Benz Australia/Pacific senior manager of corporate communications, David McCarthy, said while the car-maker’s prediction on the sales impact was about right, the company had already taken “other actions” to clear its stocks of cars abandoned by wary leaseholders.

“We did have some orders that would have been subject to that (FBT impost),” Mr McCarthy said. “We have a number of cars, mainly C-Class, that the orders were put on hold.

“We’ve accepted that and what we’ve done with those orders is we’ve basically put them into the (retail) system.

“There was an impact on us, but as far as we’re concerned, it’s over.” Holden refused to comment on its monthly sales performance ahead of the official figures being released.

Australian Automobile Dealers Association CEO Richard Dudley said a survey of about 300 members nationally showed the FBT changes were biting hard.

“Dealers were reporting well over 20 vehicles plus were being cancelled within the first four weeks, and so what VFACTS is revealing, from what I can gather, is what we expected it to show, and that is a decline across the board as the result of this decision,” Mr Dudley said.

He said dealers and car manufacturers attempting to move surplus stock had resulted in a “flurry of advertising”, as well as low- and zero-finance deals to try and encourage retail sales.

“There’s no question from the cancellations that have taken place and the decrease in sales that it has had the overnight impact we predicted it would back in July, and we expect that that will be further echoed in the VFACTS figures” Mr Dudley said.

He said while no dealerships had yet hit financial difficulty because of the loss of novated leasing and salary-sacrificed vehicles, “we’re well down that pathway”.

“I don’t think there can be any hiding away from the impact,” he said. “It just goes to show what can happen if you fail to even have a conversation with industry prior to coming up with these schemes.” Japanese brands such as Subaru, Honda and Suzuki are expected to show drop-offs in sales of between 10 and 20 per cent for the month, while industry giant, Toyota, is expected to weather the storm with a small fall.

Figures from the Australian Fleet Lessors Association showed orders placed in the first half of August were down by 37 percent compared with the first half of July.

Orders for Australian-made cars had fallen by 35 per cent, while for other vehicles the figure was an even higher 38 per cent.

“The AFLA data shows that the average cost of the funded portfolio is around $36,000 per vehicle, less than four percent are above the luxury car limit, and 50 percent are Ford, Holden or Toyota-manufactured products,” the association said in a release.

“Vehicles used as tools of trade make up around three-quarters of the fleet and are predominantly Australian manufactured vehicles.” Deloitte Motor Industry Services lead partner Grant Cameron said Toyota’s ability to hang on to sales was notable based on its exposure to fleet buyers.

“Toyota did a very good job of trying to stop the sales drought as such (by convincing fleet buyers to become retail buyers),” he said. “We were ringing around a lot and a lot of the big fleet dealers were largely impacted.

“The non fleet dealers, they actually liked it, because the view was that for too long there were too many customers coming in as fleet customers who were not real fleet customers.

“They’re now coming in as good retail deals as such, so some (dealers) are pretty happy with it.” He said the industry was also waiting for the outcome of the federal election.

“It’s all hinging on that, and it looks like (shadow prime minister Tony) Abbott will get up – who knows? “If Abbott gets up, it’s business as usual in my view, but there has been some damage done, but the VFACTS (figures) will tell all.” Toyota also declined to comment ahead of the release of official figures, although media and external affairs manager Beck Angel said the car-maker would specifically address the impact of the FBT after the data’s release.

Federation of Automotive Products Manufacturers CEO Richard Reilly declined to comment on how his member businesses were being affected by the tax changes.

He said he would be prepared to talk once he had seen the sales figures released tomorrow afternoon.

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