Oz Auto Makers Predict 100,000 Lost Vehicle Sales Annually From New Tax

New-vehicle sales in Australia are expected to drop 10% or more a year, or about 100,000 units, if the federal Labor government continues with its unilateral change to the fringe-benefits tax, the Federal Chamber of Automotive Industries warns.

Under the changes, employees who receive a company car as part of their salaried package must pay the FBT on the portion of vehicle costs related to private use. Previously, a worker could use a statutory formula to arrive at a figure of 20% and not have to justify the claim.

More troublesome, says the FCAI, is its analysis that finds domestic auto makers – GM Holden, Ford and Toyota – will see sales tumble an average 20%. The group’s data shows local production through June, before the tax change was announced by the new Rudd government, already was down 15.7% to 76,971 units.

As a result, the auto industry is organizing a A$10 million ($8.9 million) war chest for an ad campaign starting this weekend against the FBT. The campaign, which will run on television, in print and on social-media platforms, will emphasize how the tax change has impacted everyday workers.

A spokeswoman for Treasurer Chris Bowen tells The Australian newspaper the government rejects the FCAI’s claim. “The estimated impact of the FBT changes on locally produced car sales is very small compared to the industry's total annual production,” she says.

But FCAI CEO Tony Weber argues the FBT change will damage the entire car industry, including importers, dealerships and finance companies.

“It has already been a very difficult time for local manufacturing in this country,” he says in a statement. “I fear the government’s decision to change the FBT policy for vehicles could have a dire effect on Australian car production, including the manufacturing supply chain.”

With a September federal election looming, the ruling Labor government is tossing the ball into the opposition’s court, accusing its spokesman Joe Hockey of confirming a Coalition Government would cut off support for Australia’s automotive industry and watch from the sidelines as manufacturers closed their doors.

“Not content with pledging to gut A$500 million ($454.8 million) from existing support for car manufacturing in Australia, Joe Hockey has taken it a step further and categorically ruled out any future assistance under a Coalition Government,” Industry Minister Kim Carr says in a statement.

With all the mudslinging, dealers already are suffering losses. Ian McLean, head of the automotive group that owns City Ford in Sydney, says the buying public is uncertain about the future and when that happens they defer purchases.

“We ordered our cars five months ago,” he says of the dealership. “The cars keep coming. They’re piling up in the backyards, and the customers are deferring. It becomes an immediate problem. We have to fund that floorplan inventory, and we need consistency and for the customers to keep buying.”

Australian Salary Packaging Industry Assn. President Leigh Penberthy says neither Rudd nor Bowen have made themselves available to meet key sector representatives despite the 3,000 jobs on the line after 10,000 vehicle orders were canceled in the first week after the FBT change was announced.

Opposition leader Tony Abbott says thousands of vehicle sales have been canceled, hundreds of jobs are gone and hundreds of millions of dollars in wealth destroyed because of an FBT decision that wasn’t thought through. “(The tax) will end up (costing) ordinary workers A$1,400 ($1,273) a year. Is it any wonder they're not buying cars?”

Carr says voters face a stark choice at the next election concerning Australia’s future as a manufacturing country. “(It’s) about whether or not Australia has an auto industry. Unlike Tony Abbott and the Coalition, the (Labor) government understands the value of automotive manufacturing to the economy.”

The Australian reports the Rudd government dismisses the industry’s claim of a 100,000-unit annual decline in new-car sales, and senior ministers declare the cabinet will maintain the FBT policy. However, the cabinet continues to work on an auto industry package to mitigate the impact of the FBT, even as Treasurer Bowen defends the tax change.

“This is ensuring our tax system is fair and equitable and sustainable,” he is quoted as saying. “And all we've asked is if people are claiming a car through their employer that they show some company use, some business use, a logbook, even an electronic logbook which can be kept for three months, and then get a tax deduction for five years.”

Gas Energy Australia says the FBT changes should exempt new, locally made liquefied-petroleum-gas vehicles because they benefit family budgets, the environment and Australia’s energy security.

“The car manufacturing and Autogas industries already face tough times, so it is unwise to do anything which could affect jobs in these sectors,” CEO Mike Carmody says.

An FBT change that leads to fewer new cars on the road could mean fewer conversion opportunities for the wider Autogas industry. That includes about 2,000 LPG conversion businesses employing 6,500 licensed installers as well as 11 vehicle-equipment suppliers and other small businesses servicing the LPG car market.