Alfa Romeo and Audi are following Volvo's lead, both announcing they will absorb the added eight per cent of luxury car tax (LCT) if the proposed increase goes ahead.
Audi's announcement was made yesterday, the first day of the new financial year, and Alfa Romeo followed suit today. As a consequence, Alfa, Audi and Volvo buyers (more here), who had already contracted to purchase vehicles prior to the tax increase announcement in the federal budget will not have to pay any extra -- provided they take delivery of the new car prior to August 26.
On that date (the date the Senate Economics Committee is due to hand down its report on the Luxury Car Tax increase, more here), the three importers will decide whether to continue absorbing the added cost or raise prices.
"We take our business operations in Australia extremely seriously," says Audi Australia's managing director, Joerg Hofmann.
"We have been investing substantially in this market to establish our brand and we're determined to maintain the momentum we have achieved to-date."
Alfa Romeo has similar concerns, but also recognises a risk in further separating the company's petrol models from the more expensive turbodiesels.
"To automatically pass on the tax rise during this period of uncertainty is not commensurate with our value for money policy, so we have worked with Alfa Romeo in Italy and our dealers to remove the price rise completely until this uncertainty is resolved," says Edward Butler, General Manager for Alfa Romeo in Australia.
"Equally, we are concerned that, given the point at which the tax hike starts, it would have widened the price gap between the petrol versions and some of our turbo diesel models. Anything that makes it less easy to afford these environmentally-friendly, low fuel consumption, low emission models is not just bad for us, but also for the planet."
For the consumer at least, the initiative to absorb costs during the period of retrospective application from July 1 to August 26 avoids all the confusion and vacillation over whether to buy now or wait to see what will happen with the LCT after the Senate's scrutiny of the legislation.
Alfa, Audi and Volvo dealers also benefit in one particular way from this initiative -- sales should continue over the next couple of months without the peaks and troughs being experienced currently by dealers of other brands similarly affected (more here).
As for the importers themselves, it's a PR win that costs the companies nothing if the tax increase doesn't go ahead.
But Audi and Volvo's competitors are not buying it. BMW, Lexus and Mercedes-Benz are revising their prices upwards to allow for the prospect of increased tax on vehicles price above the new tax threshold -- announced by the ATO this week -- of $57,180.
"If it walks like a duck, if it quacks like a duck... It must be a discount," comments David McCarthy, Senior Manager Corporate Communications for Mercedes-Benz.
McCarthy sees some danger in the three prestige importers adopting this tactic. It could affect resale values and could tarnish the brand, although current owners of luxury cars will not see new cars being sold at prices less than they've already paid, so it's a discount only relative to the escalating prices of competitors' cars.
"I understand and respect the reasoning they've given, but I think it's a discount," says McCarthy.
"When you discount across the board, it does have an impact on resale. Whether it will in this case, I don't know."
On the subject of the LCT increase generally, McCarthy remains adamant that not only should the tax not be increased, it shouldn't be applied at all.
"Bad policy is bad policy," he says. "Our objection is it's inconsistent, it's inequitable, it taxes technology, it taxes safety -- and it doesn't make any sense."
McCarthy also believes it reflects badly on Australia's free trade credentials, since it can't be deemed a 'luxury tax' in anything but name, when other luxury commodities are hit with nothing more than the standard 10 per cent GST.
Nor will BMW and Lexus be absorbing the tax increase within their retail pricing.
"We have issued our dealers with revised pricing, that presumes the Senate will not make any change to that which the government laid out in its budget in May and therefore, we are working on the basis that the Luxury Car Tax will rise to 33 per cent, as of the 1st of July," said BMW's Alexander Corne.
FPV and HSV are also affected by the increase in the LCT, but FPV Media Manager, Dave Harding feels that the typical FPV customer is an "aspirational buyer" not likely to be deterred by the relatively smaller increases in price affecting the range.
"We won't be swallowing any of the costs -- they'll just be passed on," he says. "Lucky for us, the increases aren't all that great... the most expensive case is around $1200 [and] the utes aren't affected."
HSV will be passing on the increased sales tax to consumers, but Simon Frost, the company's Group Manager, External Affairs, says that HSV will not stand in the way of dealers assuming some of the added tax burden if that helps make a sale.
"We have recommended to our dealers that they observe the ATO guidance," he says.
"Ultimately, it's up to the dealer and the customer to arrive at a price," he adds, pointing out that HSV is not legally in a position to dictate pricing to its dealers.
Further adding to the confusion surrounding this issue, the Deputy Opposition Leader in the Senate, Senator Eric Abetz, has issued a press release, stating clearly the opposition's determination that consumers entering into a contract to buy a luxury car prior to the federal budget, but unlikely to take delivery of the car prior to July 1, would not be slugged with the LCT increase retrospectively.
"It is quite clearly untenable that people be forced to pay an increased tax simply because their car may not be delivered before -- if -- the new tax rate comes into law," declares Abetz, who is also the Shadow Minister for Innovation, Industry, Science and Research.
"Therefore, the Opposition will move, as a minimum, an amendment to ensure that people who ordered so-called luxury cars before 14th May, but have yet to take delivery, will not be subject to the increased tax, should it become law."
"The Opposition has quite rightly moved to give this new tax grab proper scrutiny, especially given that neither industry, retailers, the community, nor even Minister Carr's own department were consulted about the proposed changes," he concluded.
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