Why fresh car prices won’t be cheaper with Japan Free Trade Agreement

COMMENT: Fresh car prices won’t all of a sudden come down by five per cent, but you may get more for your money, now that a FTA has been signed with Japan.

One of the cheapest cars on sale in Australia . a two thousand fourteen Suzuki Alto.

DON’T expect fresh car prices to all of a sudden drop by five per cent now that a Free Trade Agreement has been signed with Japan — where thirty five per cent of all fresh cars sold in Australia come from — but you might get some extra equipment.

In fact, if the value of the Australian dollar takes a dive and/or the Japanese government determines to stop undervaluing the Japanese Yen (to boost exports), the prices of Japanese cars could actually go up.

The exchange rate inbetween the Australian dollar and the Japanese Yen has moved by sixty per cent over the past ten years (far greater than the five per cent difference we’re supposed to be getting excited about), and at the moment all the odds are in our favour.

Aside from the fact that no one pays utter price for fresh cars these days, the RRPs of popular Japanese cars are already at 20-year lows.

The Toyota Corolla and Nissan Pulsar embark at $Nineteen,990, the same price they were two decades ago despite being fatter, safer, more efficient and loaded with extra equipment.

Furthermore, it’s significant to note that the five per cent tariff cut comes from the price of the car out of the factory gate.

So, using a $Nineteen,990 car as an example, and taking an educated guess at the wholesale price of the car when it is unloaded off a ship, the five per cent cut will come off the “landed” price, say, $15,000. And five per cent of $15,000 is just $750.

Then add ten per cent GST, the wholesale margin, the dealer margin and transport costs and you end up somewhere near $20,000 as the retail price of the car, before on-road costs are added.

So where’s your $750 discount, we hear you ask? Well, we already have a convenient example of where it will likely go: extra equipment at no extra charge.

The Toyota Corolla hatch is presently made in Japan and costs $Nineteen,990. The Toyota Corolla sedan is presently made in Thailand (with which Australia already has a Free Trade Agreement, so it does not get hit with a five per cent tariff) and it is dearer than the hatch: $20,700.

That’s because the sedan has a rear view camera and rear parking sensors as standard and the hatch does not. Toyota chose to fit worthwhile safety features rather than trim the price.

Now that a Free Trade deal has been signed with Japan, don’t be astonished to see Toyota make the same switches to the Japanese-made hatch, adding extra equipment rather than cutting the price.

One of the cheapest cars on sale in Australia . a two thousand fourteen Suzuki Alto.

Providing, of course, the currency doesn’t tank.

Then there is the issue that some Japanese cars aren’t actually made in Japan. Did you know the Suzuki Alto, at $11,990 one of the cheapest cars on sale in Australia, has a Japanese badge but is made in India?

The same goes for the $12,990 Nissan Micra (which used to be made in Thailand and Indonesia and now comes via India). So don’t expect a five per cent discount on those cars.

And most of the Japanese branded utes (the third-biggest vehicle category in Australia) such as the Toyota HiLux and Nissan Navara, come from Thailand so already benefit from a Free Trade Agreement.

There may be more wriggle room on the prices of dearer cars sourced from Japan, but car makers are careful to not demolish the resale value.

They go to fine lengths to keep prices constant, often railing the currency wave themselves so people don’t lose as much money on their cars and hopefully come back to buy another one, sooner.

If prices were to tumble as the Government would like us to believe, then guess what? Your car is abruptly worth less at trade-in time.

For example, how would you feel if you paid $40,000 for a Japanese car and then, two months later, your neighbour paid $38,000 for an identical model?

You’ve just ripped up an extra $2000 on the resale value of your car, and your neighbour is $2000 in front because $38,000 will become the price the car is judged against.

There is no doubt the Free Trade Agreement is ultimately a good deal, but this is a case of be careful what you wish for.

Why fresh car prices won’t be cheaper with Japan Free Trade Agreement

Why fresh car prices won’t be cheaper with Japan Free Trade Agreement

One of the cheapest cars on sale in Australia . a two thousand fourteen Suzuki Alto.

DON’T expect fresh car prices to all of a sudden drop by five per cent now that a Free Trade Agreement has been signed with Japan — where thirty five per cent of all fresh cars sold in Australia come from — but you might get some extra equipment.

In fact, if the value of the Australian dollar takes a dive and/or the Japanese government determines to stop undervaluing the Japanese Yen (to boost exports), the prices of Japanese cars could actually go up.

The exchange rate inbetween the Australian dollar and the Japanese Yen has moved by sixty per cent over the past ten years (far greater than the five per cent difference we’re supposed to be getting excited about), and at the moment all the odds are in our favour.

Aside from the fact that no one pays total price for fresh cars these days, the RRPs of popular Japanese cars are already at 20-year lows.

The Toyota Corolla and Nissan Pulsar commence at $Nineteen,990, the same price they were two decades ago despite being thicker, safer, more efficient and loaded with extra equipment.

Furthermore, it’s significant to note that the five per cent tariff cut comes from the price of the car out of the factory gate.

So, using a $Nineteen,990 car as an example, and taking an educated guess at the wholesale price of the car when it is unloaded off a ship, the five per cent cut will come off the “landed” price, say, $15,000. And five per cent of $15,000 is just $750.

Then add ten per cent GST, the wholesale margin, the dealer margin and transport costs and you end up somewhere near $20,000 as the retail price of the car, before on-road costs are added.

So where’s your $750 discount, we hear you ask? Well, we already have a convenient example of where it will likely go: extra equipment at no extra charge.

The Toyota Corolla hatch is presently made in Japan and costs $Nineteen,990. The Toyota Corolla sedan is presently made in Thailand (with which Australia already has a Free Trade Agreement, so it does not get hit with a five per cent tariff) and it is dearer than the hatch: $20,700.

That’s because the sedan has a rear view camera and rear parking sensors as standard and the hatch does not. Toyota chose to fit worthwhile safety features rather than trim the price.

Now that a Free Trade deal has been signed with Japan, don’t be astonished to see Toyota make the same switches to the Japanese-made hatch, adding extra equipment rather than cutting the price.

One of the cheapest cars on sale in Australia . a two thousand fourteen Suzuki Alto.

Providing, of course, the currency doesn’t tank.

Then there is the issue that some Japanese cars aren’t actually made in Japan. Did you know the Suzuki Alto, at $11,990 one of the cheapest cars on sale in Australia, has a Japanese badge but is made in India?

The same goes for the $12,990 Nissan Micra (which used to be made in Thailand and Indonesia and now comes via India). So don’t expect a five per cent discount on those cars.

And most of the Japanese branded utes (the third-biggest vehicle category in Australia) such as the Toyota HiLux and Nissan Navara, come from Thailand so already benefit from a Free Trade Agreement.

There may be more wriggle room on the prices of dearer cars sourced from Japan, but car makers are careful to not ruin the resale value.

They go to excellent lengths to keep prices constant, often railing the currency wave themselves so people don’t lose as much money on their cars and hopefully come back to buy another one, sooner.

If prices were to tumble as the Government would like us to believe, then guess what? Your car is all of a sudden worth less at trade-in time.

For example, how would you feel if you paid $40,000 for a Japanese car and then, two months later, your neighbour paid $38,000 for an identical model?

You’ve just ripped up an extra $2000 on the resale value of your car, and your neighbour is $2000 in front because $38,000 will become the price the car is judged against.

There is no doubt the Free Trade Agreement is ultimately a good deal, but this is a case of be careful what you wish for.

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