Glimmer of hope from the top end

THIS time last year, luxury car sales fell off a small cliff, pushed by a double whammy from the global financial crisis and a hike in the federal government’s luxury car tax (LCT) from 25 per cent to 33 per cent on vehicles priced above $57,180.

After a beat-the-tax sales spike in June last year, premium passenger car and SUV sales dived on introduction of the LCT – which finally came to pass amid confusion in September after some politicking to get it through the Senate – and proceeded to slide for the rest of 2008.

By November 2008, luxury car sales were down more than 40 per cent on the same month in 2007, in contrast to the general market’s November year-on-year decline of about 22 per cent.

Furrow-browed luxury car-importers hastened to scale back factory orders and pump up sales incentives, lest they be stuck with hectares of excess stock sitting waist-deep in weeds.

A year on, sales of thoroughbred machines are not much improved, but, importantly, they are at least a little better, by a margin of a few hundred cars in August over the corresponding month in 2008.

August was the first month this year in which the luxury breeds managed to stick their collective noses in front of last year’s sad monthly sales tallies.

From top: BMW 520d, Audi A6, Volvo XC90.

The ‘Medium Cars Above $60,000’ segment – inhabited by prestige favourites such as the BMW 3 Series, Mercedes-Benz C-class and Audi A4 – was up 1.8 per cent for the month compared with August 2008, although still trailing by 11 per cent on the year-to-date scale.

While no one is getting carried away, car companies hope the mini upturn signifies a stabilising of sales – the beginning of the end of the slump.

Almost all importers in the luxo game fared better last month. Marques such as BMW (+2 per cent), Audi (+34 per cent), Lexus (+3.9 per cent) and Volvo (+26.7 per cent) were relieved to see black ink on the sales sheets after months of deficits.

Of course, after the sales plunge of the previous year in July and August, they did not have a lot to beat.

The apparent recent recovery has been put down to a number of factors, led by continued beneficial effects tax depreciation benefits for small businesses – responsible for another June spike this year as buyers got in before the end of the financial year – and recent gains in consumer confidence.

Buyers, it appears, are beginning to breathe again. Perhaps a few are also getting used to the idea of paying the government extra, via the LCT, for the privilege of driving a nice car.

But that is not the whole story, as burgeoning sales of certain diesel luxury cars reveal.

Last year, as part of its luxury car tax rise deal in the Senate, the federal government approved LCT concessions for luxury vehicles with a fuel-consumption rating of at least 7.0 litres per 100km, from the $57,180 LCT threshold up to $75,000.

Twelve months down the track, this carrot has had the desired effect, with car importers and luxury car customers alike taking unprecedented interest in fuel-sippers, mainly of the diesel variety.

The tax breaks have enticed car-makers lucky enough to have suitable models on offer in Europe to accelerate availability of the new breed of quiet-ish, efficient and powerful diesels which had already started to win a growing audience.

BMW, for example, has ramped up its diesel range to 21 models capable of beating 7.0L/100km, including the top-selling 5 Series model, the 520d, which falls nicely in the tax-break sweet spot to save buyers $5000. Further, BMW has announced another 10 diesel variants to arrive soon.

Accordingly, the diesel share of BMW sales has grown from 25 per cent last year to 33 per cent this year, with no fewer than 50 per cent of 5 Series vehicles now being equipped with oil-burning engines.

BMW Australia public relations and corporate communications manager Toni Andreevski said BMW believed diesel sales might top out at 40 per cent across the range, although he cautioned that it was difficult to define how many diesel sales could be attributed to the tax breaks rather than just the new-found appeal of the new engines.

Around the corner at Mercedes-Benz Australia, senior manager corporate communications David McCarthy said the three-pointed-star marque was heading towards 30 per cent diesel, from “low 20s”, based on stock forward orders.

Mr McCarthy said most of the renewed activity above the LCT threshold was up to about the $150,000 mark – a zone in which where the combined effects of the fuel-consumption LCT breaks up to $75,000 and the small-business tax depreciation incentives had most effect.

Ironically, the problem now for Benz and many of its rivals is a stock shortage. Turning the supply tap back on in a timely manner is a challenge for any importer, especially when other markets around the globe are similarly finding their feet economically.

Volvo Australia public affairs manager Laurissa Mirabelli told GoAuto that the Swedish brand hoped to turn a 7.9 per cent year-to-date sales deficit into a sales gain by year’s end – if it can get its hands on stocks of XC90 and XC60 SUVs and other in-demand products.

As stock-strapped Volvo can attest, no market segment has enjoyed a stronger recovery than luxury SUVs. While the general SUV market was down 1.9 per cent in August, sales of the top-end variants were up 19.2 per cent.

And if stock had been more plentiful, the growth might have been higher.

Looking ahead, overall luxury car sales are unlikely to spiral upwards dramatically any time soon, although Federal Chamber of Automotive Industries (FCAI) chief executive Andrew McKellar believes the scheduled demise of the small business tax breaks on December 31 might cause something of an end-of-year flurry in fleet and executive vehicles – and another struggle from January.

While luxury car sales might continue to recover, Mr McKellar told GoAuto that the LCT would continue to weigh on the top end of the market.

Longer term, the FCAI and the luxury car-makers have their fingers crossed for some joy from the Henry Tax Review, which is putting at the LCT under the microscope, along with all taxes.