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Luxury car-maker refutes gouging claims

Class act: Mercedes-Benz says rivals have complained that the new A-Class hatchback had forced them to cut prices to match.

Productivity Commission submission savages luxury brands over prices

15 Nov 2013

MERCEDES-Benz says it is “interesting” that a submission to an inquiry looking at the future of Australia’s car-making industry has accused luxury brands of gouging buyers.

Instead, Mercedes-Benz Australia senior manager of corporate communications David McCarthy said the German luxury brand’s cars were more affordable than ever before, and represented good value.

A submission to the Federal Government’s Productivity Commission inquiry into automotive manufacturing from Adam Lewis, a former managing partner at the Australian arm of management consultancy McKinsey and Company with experience of the car-making industry “at the policy level”, has accused luxury brands of taking advantage of the Australian market to bolster prices.

“... The assistance to the (Australian car) industry only picks up the direct levels of assistance, namely the direct injection of government money plus the money raised through tariffs of (sic) imported cars (namely GST and the Luxury Car Tax),” Mr Lewis writes in his submission.

“While this is significant, it fails to recognise the corresponding price gouging that occurs by the foreign car companies who are able to operate local pricing under a very large price umbrella,” he said.

“It is not a coincidence that Australia is one of the most profitable (in terms of dollars per unit sold) market for many of the German car makers around the world.” Mr Lewis then calculates that the price of a $119,700 Audi A6 sedan fitted with a twin-turbo diesel V6 engine is about $45,000 more than compared with how the car is priced overseas – although he does fail to acknowledge that because the A6 uses no more than 7.0 litres of fuel for every 100 kilometres it travels it qualifies for an extra tax break.

However, Mr McCarthy said the simplest test to determine if a car was overpriced was whether people bought it.

“I think it is is interesting (that Mr Lewis makes this sort of claim), but the reality is that here’s a thing called the free market. I put it to you that if our cars are overpriced, people won’t buy them,” Mr McCarthy said.

“It’s easy for anyone to accuse luxury car-makers of gouging. The sort of calculation he (Mr Lewis) has made is simplistic.

“In pretty much every segment we’ve been in we pretty much have been the benchmark in pricing – our cars are much more affordable and attainable than ever before,” Mr McCarthy said.

“Our business is to sell every car at a profit. Is that profit excessive? I think not, and the market will decide that.

“It is easy to make these claims, but the reality is I don’t believe them to be true.

Mr McCarthy said Mercedes-Benz’s rivals had complained in the media that the price of its new A-Class hatchback was too cheap, forcing them to reduce prices of rival hatchbacks in response.

He said importers also had to pay for the cost of landing the car in Australia, as well as compliance with Australian Design Rules, storage fees and accounting for low-volume right-hand-drive production.

Mr Lewis’s submission also singles out BMW and Porsche as engaging in alleged price gouging in Australia.

Audi, BMW and Porsche were asked for comment.

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