Along with many other industries, the retail automotive industry has taken a battering from COVID-19 shutdowns and social distancing measures. With those restrictions now beginning to ease, AADA has come up with a few strategies we’d like to see the Federal Government implement to assist our industry to get back on its feet.
The AADA has held meetings with a number of important Government agencies in recent weeks on the state of the industry and what is needed to facilitate a recovery. Meetings with the National COVID-19 Coordination Committee and the Coronavirus Business Liaison Unit allowed us to provide an automotive industry perspective, on post COVID-19 recovery measures. These five measures have also been shared widely in Government and are the subject of a continued effort by AADA to ensure programs are put in place that will assist Dealer businesses and the Australian economy more widely to emerge from the pandemic with a path to sustainable business.
1. Extending the Instant Asset Write-Off
The expanded instant asset write-off policy announced on 12 March has been extended a further six months, to 31 December 2020. If as at this date volumes remain depressed, the scheme should be further extended to 1 July 2021. Because of the scale of the economic downturn many businesses have not been prepared to invest in assets during this lockdown phase. In addition, many of the intended recipients of the instant asset write-off, such as sole traders, are being treated as high risk customers by lending institutions.
This policy will be more effective in the recovery phase of the downturn. The Government should also remove the car limit of $57,581 which is an unfair disincentive applied to one particular class of products and encourage as many businesses as possible to make use of the full $150,000 limit.
2. Fleet Renewal Scheme
The Government should develop a fleet renewal scheme that will provide a stimulus for the automotive industry and assist in making Australia’s passenger vehicle fleet safer, while also reducing emissions.
Fleet renewal schemes have been successfully applied in other industrialised economies throughout the world during economic downturns. Such a scheme would provide significant benefits to motorists in terms of safety and fuel consumption, with a wider societal benefit in the form of reduced emissions.
ANCAP reports that vehicles built before the year 2000 represent only 20 per cent of the fleet but are involved in nearly one-third of fatal crashes while AAA research has shown that lowering the average age of Australia’s light vehicle fleet by one year would save up to 1,377 lives, creating a $19.7 billion benefit in trauma and emission reductions over a 20-year period. In terms of efficiency, a 2016 fuel efficiency RIS found that vehicle efficiency improved by 76 per cent from 2005 to 2015.
The scheme would be particularly suitable for Australia because of the high average age of Australia’s vehicle fleet, which is around 10 years and lags similar countries. It would also have a downstream benefit for small businesses in the industry. Such schemes are currently being considered by countries such as Germany, the United States and the United Kingdom to breathe life into automotive retail following the COVID-19 downturn.
3. Freeing Up Car Finance
The Banking Royal Commission has resulted in everyday car buyers finding it more difficult to get finance approval for the purchase of vehicles. To compound matters COVID-19 has led to many occupations being deemed high risk resulting in a further tightening of credit. This is the biggest factor behind the downturn in new car sales over the past two years and if it persists will significantly affect the industry’s ability to recover.
Default rates in the motor vehicle finance industry have been relatively low in Australia and the Government should explore ways of freeing up credit to appropriate consumers and businesses.
4. Automotive Taxation Reform
New cars are subject to a range of inefficient taxes. Import tariffs, the Luxury Car Tax, state stamp duties and registration fees have all been identified by various reviews and inquiries as needing reform to ensure that they remain appropriate for the changing motoring environment. A range of automotive taxes should be abolished or substantially reformed.
There is no longer a local manufacturing industry to protect and many of the federal taxes are acting as a disincentive for motorists to buy safer and cleaner vehicles or equip them with safety accessories. At the state level, luxury stamp duties have been applied in several jurisdictions driving up the cost of the safest and most fuel-efficient vehicles to be among the most expensive in the world.
5. Reform Automotive Industry Franchising
Reform the laws surrounding Dealer Franchise Agreements to rectify the imbalance in power that exists between OEMs and Dealers. The regulations updated earlier this month are important protections, but they need to go much further. They have not covered important elements, such as compensation, warranty practices and the insecurity of tenure.
The impact of the COVID-19 virus has resulted in reductions in car sales reported by many Dealers at around 60 per cent, which comes on top of 26 consecutive months of decline in new car sales. These unsustainable losses pose an existential threat to Dealers and the nearly 60,000 people they directly employ, as well as the tens of thousands employed indirectly in the businesses with whom they trade.
A review of Dealer franchising will enable Dealers to right size their businesses in the prevailing market and remove the unfair and onerous obligations placed upon them by many of the OEMs.
There is a saying in politics that has been going around again in these times: “never waste a good crisis”. Now is the time for governments to review policies and we urge the Australian Government to give our recommendations strong consideration in order that our significant contribution to the Australian economy continues into the foreseeable future.
The AADA will continue to push these five recommendations with government and the appropriate agencies.