Why are cars so expensive in Australia

Why Do Cars Cost So Much In Australia?

Australia is a rich country and has been referred to by many as the Treasure Land. However, it may not be a country that one should rush to live in without taking a deep look into essential factors. With a closer look into the country's economy and the prices of commodities, including cars, it is easy to see that living in Australia can be really expensive.

Not only do Australians pay more for cars, but they also pay a lump sum for songs, Levi jeans, shoes, etc. Deutsche Bank's report about World Prices submitted after recent research revealed that Australia ranks as the most expensive country to reside in, in the world. So, how much do cars cost in Australia, and why do they cost so much?

Comparing Car Prices In Australia Vs USA

Cars in Australia sell at higher prices than in other countries such as the United States of America. This is true, especially for the most luxurious vehicles. Research shows that one can purchase a BMW M3 in the United States for as low as $88,368 while the same car would go for $139,615 minimum in Australia. In the United States, an Audi S4 costs $70,524 approximately. The exact vehicle would cost $99,900 in Australia.

In the same vein, another comparison is on the price of an Alfa Romeo Giulia Quadrifoglio. This car costs $100,524 in the United States and $143,900 in Australia. A new Cayman vehicle's entry price in Australia is $110,000, while the same car goes for as low as $72,934 in the United States of America.

Another luxury car that is priced higher in Australia is the Porsche 911. This car has an entry-point of $114,208 in the United States while the cheapest model of the same in Australia, which is a base Carrera, goes for $217,500. A Porsche Carrera S that costs around $88,000 would cost around $282,800 in Australia. The authorities further impose luxury-car tax, goods and service tax, and import tax on this vehicle, making it expensive.

These taxes also increase the price of a Lexus LS. For instance, the Lexus LS costs approximately $66,230 in the United States and a higher price of roughly $191,200 in Australia. Australians are forced to pay high even for the cars made within the country. For instance, in 2013, when the Australian made Commodore SS was going for $45,000 in the USA, the same car was going for about $55,290 in Australia. Imagine spending up to $10,000 extra for a vehicle manufactured locally? Yeah, that's no fun!

Why Are Cars That Expensive In Australia?

Many people have wondered why cars cost so much in Australia, yet the Australian dollar is strong, close to the American dollar. Even though the AUD has sometimes lowered to about 0.52 GBP and 0.76 USD, it has remained strong for a more significant period. However, the heart of the matter is that the prices of cars in Australia do not vary as the Australian dollar fluctuates.

This is because, in an attempt to keep the costs of imported high-end cars stable, the currency rates are always instituted up to a year prior. If this is the case and the authorities further protect the consumers from buying luxury cars at higher prices, how is it possible that the value of the vehicles increases later in time? Various factors affect and lead to the spiked prices of cars in Australia including:

Australian Tax System

One factor that has come to stand out as the primary cause of high car prices in Australia is the Australian Tax System. The tax system is one of the primary causes of high car prices in Australia, especially the Luxury Car Tax (LCT). The Howard government established this tax to operate together with the goods and services tax (GST). The Australian Luxury Car Tax came into place to replace the wholesale tax in the 1980s.

This tax system came into place when the government was battling to get rid of the barriers in the failing local car industry created by excess import tariffs. Even before the onset of the Luxury Car Tax, Australians still paid more for luxury cars due to the high import duties. The Luxury Car Tax did not mitigate this issue; it only changed the high import tariffs' mode.

The end of the high import tariffs in Australia did not welcome any room for celebration. Australians found themselves strangled by the luxury car tax and the goods and services tax. These increased the prices of luxury cars more than in other states like the United States of America.

Luxury Car Tax

The luxury car tax rate was 25% for luxury cars during the Howard government, costing over $55,134. However, the Rudd government saw an increase in these rates to 33%. It has remained constant to date. The luxury car tax is paid mainly by car dealers selling luxury cars, thus passing it on to the consumers. However, it would also apply to individuals who opt for self-importation of luxury cars.

The authorities use the formula of (LCV - LCT threshold) × 0.33. The LCV in the formula represents the luxury car value which means the retail price of the luxury car. The Australian authorities have been making huge gains from taxes brought in through the sale of cars. The statistical data records in 2015 revealed that the authorities gained more than $6.5 billion in taxes, stamp duty, and other fees.

Researchers have stated that approximately 20% of car prices contribute to government tax. This 20% accounts for the GST, import tariffs on cars imported from specific states, and the Luxury Car Tax. Luxury Car Tax forms the more significant part of it. This raises the prices of vehicles in Australia since other luxury vehicles such as helicopters and yachts are not taxed by the government.

Similarly, the LCT is imposed on new cars whose prices cost around $60,316. The LCT is set at $75,375 for fuel-efficient luxury cars. Fuel-efficient luxury cars are those that are deemed to consume less than 7.0L/100km on the combined cycle. Technically, a car owner pays 33% tax to Australia's Federal Government for every dollar above the mentioned prices. This generally makes the cost of cars higher in Australia.

Purchase Fees

Moreover, one would have to pay the government stamp duty, registration fee, etc., upon purchasing a new luxury car in Australia. These high prices have discouraged some citizens from buying certain luxury cars. For instance, according to Porsche, most clients do not prefer or do not want to buy the 918 since $300,000 of the $1m would go to the government.

Number of Cars Bought

This is another factor that leads to the high prices of cars in Australia. Research shows that countries such as the United States of America purchase approximately 30 million vehicles annually. In contrast, Australia buys about one million cars annually. What is the disadvantage of this? Similar to other commodities, there are discounts for people who purchase goods in large quantities.

This translates to the fact that the United States gets more discounts than Australia. Since the United States receives discounts on the purchase of cars, they would not have to sell their vehicles at a very high price. On the other hand, Australia that buys fewer cars and gets little or no discount would most likely have to sell their cars at higher prices to cover such extra expenses.

Vehicle Demand

Apart from the number of cars purchased, the demand for specific car models also leads to high prices of luxury cars in Australia. Most Australians prefer mid-range luxury vehicles meaning that the top-end cars such as the Lamborghini and Ferrari have a lower demand. The demand-supply rule dictates that low demand would translate to a high price.

Similarly, Australia's low demand for top-end cars leads to a higher retail price. A higher retail price subjected to the formula stated above would mean that the consumer will pay higher for the car. Moreover, Australia has a small population, and only a few people are able to afford such vehicles that cost vast amounts of money.

Car Modifications

The luxury cars sold in Australia are not exactly similar to the ones sold in other countries. Information provided by Drive.com.au indicates that most luxury cars of German origin are modified to meet the conditions in Australia. In most instances, the cars are given higher specifications. For example, Mercedes-Benz includes some unique cooling packages to mitigate the hot temperatures during summer in Australia.

Since many Australian drivers like towing, Mercedes-Benz also instals towing packages in some of its vehicles to fit in the Australian car markets. On the other hand, Audi modifies its high-performance cars to handle the heat during summer in Australia. Drive.com.au states that luxury cars are also modified in line with safety standards. For instance, a Mercedes-Benz C-Class sold in Australia comes with nine airbags. Those in the United Kingdom have seven airbags.

Furthermore, various manufacturers also prefer having different stability control calibrations for the luxury cars sold in Australia. What is the bottom line? The Australian-specific modifications contribute to the high prices of luxury cars in the country.

Most of these specifications are established to suit the needs of the small population in Australia that can afford top-end luxury cars. Therefore, the expenses incurred in establishing these specifications are incorporated into the prices of the vehicles. This means that the consumers subsequently settle the cost of the vehicle. The consumers thus have to pay high fees for the cars.

Leniency in the Car Market

Australians were paying more for imported cars even before establishing the luxury car tax and the goods and services tax. Most luxury vehicles that originated from Germany, such as Mercedes-Benz and BMW, did cost as much as in the early 1980s. The import duties were as high as 59%.

The Australians tolerated these high prices and have maintained that market tolerance. Such tolerance could be giving the car manufacturers a perception that the high prices are welcomed. Maybe this is why car manufacturers have continued to sell their cars for higher prices in Australia compared to other nations such as the United Kingdom.

Importation Costs

Regardless of what most people think, self-importing a car in Australia could even be more expensive. The chances of self-importing are close to impossible as well. The Department of Infrastructure and Regional Development prohibits self-importation of vehicles by individuals with a few exceptions.

That mandate is generally placed on large manufacturing companies that conduct comprehensive research to ensure that the cars imported are eco-friendly and meet the required safety standards. For one to go through a DIY car importation in Australia, they must have owned the vehicle while living in the foreign country, and the vehicle must have been close to the address in the foreign country for at least a year.

This period must be preceding one's permanent return to Australia. This makes it seem like an individual importing a car in Australia is nearly impossible. The truth is that the process is so complicated, but there are some exceptions.

For instance, the Vehicle Scheme established by the Department of Infrastructure and Regional Development allows one to import certain cars not sold in Australia upon approval. The scheme enables Australians to import cars manufactured before 1 January 1998. This class of vehicles consists of classic cars; the older vintage models.

The costs of importing vehicles in Australia vary depending on the car models; luxury cars obviously cost more. Whether carrying out self-importation or importing through a large manufacturing company, you would still have to pay the luxury car tax. The LCT is subject to vehicles above a certain amount of money, such as above $63,184, the limit for 2015/16. If you are importing a second-hand vehicle, you could negotiate for a variation of this amount based on the car's current value.

However, if the used car value is above the LCT threshold, you must pay the 33% LCT, GST, and customs duty. Based on the above information, it is clear that you would still incur some costs when choosing to self-import cars in Australia. Self-importing a luxury car in Australia could prove to be more expensive. Similarly, the costs would depend on the value of the vehicle. The higher the price of the car, the higher the costs of self-importation.

Do Not Despair

There is no doubt that life in Australia is costly. It is also true that the cost of cars in Australia is very high. The high prices are caused by the unfavourable tax system, the market forbearance, the low demand for some vehicles, the tailoring of some cars to meet the conditions in Australia, and the fact that Australia buys fewer cars than other nations such as the United States of America.

Even though you can carry out self-importation of luxury cars in Australia, currently, the option is not any better than importation done by large manufacturing companies. It is equally expensive, if not more. It is worth noting that the high car prices are not solely on imported vehicles. It also applies to local cars though the costs of local cars are slightly lower than those imported.

What then could be the remedy? Most people do have their hopes in the operation of parallel imports. Parallel import is enabled through the amendment of legislation to allow for self-importation of cars from Japan and the United Kingdom from 2018 once every two years. However, the vehicles imported must have below 500km on the odometer and be less than a year old.

According to Motoring.com.au, parallel importation can reduce the cost of importing luxury cars. While some cars in Australia seem to cost as high as an electric car, the high cost of cars does not stop Australians from buying a car when they need one. This has also raised the prices of used cars which has been good for people wanting to sell their cars. To ensure the best prices, make sure to do your research and check online for car dealers with reasonable prices.