Australian car prices set to fall on Asian free trade deals


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Australian car prices set to fall on Asian free trade deals

Some of Australia's most popular passenger cars are selling at a small discount this year following the introduction of a major free trade agreement with Japan.

The Japan-Australia Economic Partnership Agreement (JAEPA) came into force on 15 Januaryi. The deal eliminates government import fees between the two countries, making it cheaper and easier for goods like Australian wine and Japanese electronics to be tradedii.

JAEPA has scrapped Australia's 5 per cent tariff on new small and medium cars, making it cheaper for Toyota, Subaru, Honda, Mazda and others to sell Japanese-built cars in Australia. Japanese car parts and larger vehicles will also become duty-free in three years' timeiii.

The new free trade deal will affect a huge number of new Australian cars.

Imported cars sales have grown at the expense of locally built vehicles, which accounted for only 8 per cent of sales in the past year.

Japan is the largest exporter of cars to Australia, accounting for 30 per cent of new car sales in the year to February 2015iv. The second-largest exporter, Thailand, accounts for 21 per cent of new car sales, while the third-largest, South Korea, accounts for 11 per cent.

JAEPA does not directly affect Japanese-branded cars that are built outside of Japan -including, for example, the Toyota Camry, which is built in Altona, Victoriav- but could influence carmakers across the board to cut prices to maintain market share.

In its submission to the Productivity Commission's 2013 review of the automotive industry, Toyota said it had lowered the price of the Australian-built Camry - offering $2,000 of petrol with each October 2013 purchase, for example - because it competed 'in a segment that includes a Thailand-built car that is able to enter Australia duty-free'vi.

Australia has had a free trade agreement with Thailand since January 2005vii, which made it 5 to 15 percent cheaper to import Thai-built carsviii. Australian motor vehicle imports from Thailand subsequently increased by 89 per cent within three yearsix.

JAEPA's introduction this January came barely a month after the Korea-Australia Free Trade Agreement (KAFTA) on 12 December 2014x. A China-Australia Free Trade Agreement (ChAFTA) is also due to be signed this yearxi.

The new deals are significant for Australia's car industry. Of Australia's 20 best-selling cars of 2013xii, the Hyundai ix35 is built in Korea, and six cars, including the Toyota Corolla hatch and Mazda 3, are built in Japanxiii.

Toyota reduced the price of its Corolla hatch among its other Japan-built models as a result of JAEPAxiv, while Mazda discounted its top of the range Mazda3 Astina by $1,150xv. Lexusxvi and Hondaxvii also cut prices, with the latter shaving $1,580 off the previous $47,620 list price of its seven-seater Odyssey.

Korean carmakers didn't directly cut prices, but said KAFTA allowed them to avoid raising car prices despite a strong Korean Wonxviii. The Korea Automobile Manufacturers Association expected KAFTA to bring prices down by an average of US$700 a vehiclexix.

Japan is the largest exporter of cars to Australia, accounting for 30 per cent of new car sales in the year to February 2015.

ChAFTA is expected to eliminate Australia's 5 per cent tariff on Chinese-built vehicles and 14 per cent tariff on car partsxx, but the deal will have a limited immediate impact on Australian car prices with Chinese-built cars accounting for only 0.24 per cent of Australian car sales in the past yeariv.

Imported cars sales have grown at the expense of locally built vehicles, which accounted for only 8 per cent of sales in the past yeariv, down from 22 per cent in 2008xxi.

Fordxxii, Holdenxxiii and Toyotaxxiv are due to close their Australian car manufacturing plants in the coming two years.


iPrime Minister of Australia 2015, Joint Statement on the entry into force of the agreement between Japan and Australia for an economic partnership, 15 January, viewed 23 March 2015,
http://www.pm.gov.au/media/2015-01-15/joint-statement-entry-force-agreement-between-japan-and-australia-economic

iiParliament of Australia, House of Representatives, Customs Amendment (Japan-Australia Economic Partnership Agreement Implementation) Bill 2014 Explanatory Memorandum, viewed 23 March 2015,
http://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r5371_ems_11767f38-b723-4f93-827c-9f1b78c0dba0/upload_pdf/400282.pdf;fileType=application%2Fpdf

iiiMinistry of Economy, Trade and Industry 2014, Statement by Minister Motegi on the substantive agreement on the Japan-Australia Economic Partnership Agreement, 7 April, viewed 23 March 2015,
http://www.meti.go.jp/english/speeches/20140407_01.html

ivFederal Chamber of Automotive Industries, VFACTS statistics February 2015

vToyota Australia, Manufacturing, viewed 23 March 2015,
http://www.toyota.com.au/toyota/company/operations/manufacturing

viToyota Australia 2013, Initial Submission to Productivity Commission Review of the Automotive Manufacturing Industry, viewed 23 March 2015,
http://www.pc.gov.au/inquiries/completed/automotive/submissions/initial/counter/sub031-automotive.pdf

viiDepartment of Foreign Affairs and Trade, Thailand-Australia FTA, viewed 23 March 2015,
http://www.dfat.gov.au/trade/agreements/tafta/pages/thailand-australia-fta.aspx

viiiFederation of Automotive Products Manufacturers, Thailand-Australia Free Trade Agreement, viewed 23 March 2015,
http://www.fapm.com.au/Portals/0/Thailand-Australia%20Free%20Trade%20Agreement%20-%20General%20Information.pdf

ixParliament of Australia, House of Representatives Joint Standing Committee on Foreign Affairs, Defence and Trade, Chapter 5 Trade in Goods, viewed 23 March 2015,
http://www.aph.gov.au/Parliamentary_Business/Committees/House_of_Representatives_committees?url=jfadt/asean1/report/chapter%205.htm

xDepartment of Foreign Affairs and Trade 2014, KAFTA enters into force, 12 December, viewed 23 March 2015,
http://www.dfat.gov.au/trade/agreements/kafta/news/Pages/kafta-enters-into-force.aspx

xiPrime Minister of Australia 2014, Landmark China-Australia free trade agreement, 17 November, viewed 23 March 2015,
https://www.pm.gov.au/media/2014-11-17/landmark-china-australia-free-trade-agreement

xiiAllianz Australia, Australia's best-selling vehicles in 2013, viewed 23 March 2015,
https://www.allianz.com.au/car-insurance/news/australias-best-selling-vehicles-in-2013

xiiiRedbook.com.au, viewed 23 March 2015

xivToyota Australia 2015, Toyota delivers aggressive price cuts, 6 January, viewed 23 March 2015,
http://www.toyota.com.au/news/toyota-delivers-aggressive-price-cuts

xvMazda Australia 2015, More value for Australia's favourite Mazda, 11 February, viewed 23 March 2015,
http://www.mazda.com.au/about-mazda/news/latest-news/more-value-for-australias-favourite-mazda/

xviLexus Australia 2015, Lexus introduces revised pricing structure, 2 February, viewed 23 March 2015,
http://www.lexus.com.au/about/news/2015/02/02/news-lexus-introduces-revised-pricing-structure

xviiHonda Australia, Honda's Odyssey is now even better value for money, viewed 23 March 2015,
http://www.honda.com.au/news/2015/02/hondas-odyssey-is-now-even-better-value-for-money.html

xviiiMcCowen, D 2015, 'Hyundai, Kia, Holden: No discounts under Korean FTA', Drive.com.au, 19 January, viewed 23 March 2015,
http://www.drive.com.au/motor-news/hyundai-kia-holden-no-discounts-under-korean-fta-20150119-12thsl.html

xixThe Chosunilbo 2014, Korea, Australia ink free trade deal, 19 April, viewed 23 March 2015,
http://english.chosun.com/site/data/html_dir/2014/04/09/2014040901919.html

xxPriceWaterhouse Coopers, China Australia free trade agreement, viewed 23 March 2015,
http://www.pwc.com.au/asia-practice/assets/China-FTA-Mar15.pdf

xxiKohler, A 2013, 'Subsidising the car industry to death', ABC News, 16 October, viewed 23 March 2015,
http://www.abc.net.au/news/2013-10-16/kohler-car-industry/5025360

xxiiFord Australia 2013, Ford Accelerates Australian Business Transformation, 23 May, viewed 23 March 2015,
http://www.ford.com.au/about/newsroom-result?article=1249024395989

xxiiiGeneral Motors 2013, GM to Transition to a National Sales Company in Australia and New Zealand, 11 December, viewed 23 March 2015,
http://media.gm.com/media/au/en/holden/news.detail.html/content/Pages/news/au/en/2013/Dec/1211_National_Sales_Company.html

xxivToyota Australia 2014, Toyota Australia Announces Future Plan For Local Manufacturing, 10 February, viewed 23 March 2015,
http://www.toyota.com.au/news/toyota-australia-announces-future-plan-for-local-manufacturing