Luxury car tax confusion hits showrooms

THE Australian Tax Office decision to retrospectively apply the proposed increase in the federal government’s luxury car tax (LCT, from 25 to 33 per cent for new vehicles priced above $57,123) from July 1 if passed by a Senate committee has become the latest marketing tool for a number of luxury brands.

As we reported last week, Volvo announced on July 1 that would absorb the planned eight per cent tax hike to minimise confusion and reduce the purchase price for new customers, and following suit the next day was Alfa Romeo – also via a press release.

But Audi has pointed out that although it did now issue a press release on July 1, it was in fact the first luxury marque in Australia to reassure prospective customers of their commitment via the placement of national advertisements and the creation of a dedicated micro-site on its website on July 1.

“We notice that Volvo has done no advertising and no website messaging so I wonder how their customers will know about their initiative to cover the LCT – aside from the GoAuto story,” said Audi Australia general manager corporate communications Anna Burgdorf.

Managing director Joerg Hofmann has been vocal in his objection to the Rudd government’s LCT plan and argued against the tax hike and its retrospectivity in his company’s submission to the Senate review on Monday (July 7).

“Audi Australi strongly opposes the proposed Luxury Car Tax increase from 25% to 33%,” Mr Hofmann told GoAuto. “We also strongly disagree with the planned retrospective implementation of the tax to 1 July 2008, should the legislation be passed.

“The timing of the proposed tax could not be worse. Families can ill-afford additional taxes when they are being hit by steadily rising interest rates, rising property prices, coupled with rising fuel prices. If families need to make savings, it should not be at the expense of safety features and greener, more innovative technology which may be at risk in bringing down the price of a new car.

“And for those customers who placed an order for a vehicle months ago – pre 14 May – they will now be hit by a luxury car tax increase that they could never have predicted. Some of those buyers may face having to forfeit deposits because they may not be able to afford an additional 8 percent of LCT, which they could never have foreseen.

“We believe the proposed tax increase is discriminatory – it’s a luxury tax only applied to vehicles – it is unfair. To support our customers, we decided to cover the additional 8% of tax on new and demonstrator vehicles until the legislation has passed, or until the situation is clearer.

“It is our hope that the upcoming Senate Economics Committee inquiry will positively reconsider the proposed LCT increase from 25% to 33%, and the planned retrospective introduction,” he said.

Audi’s full-page advertising campaign from July 1 is headlined “You’ll find purchasing a luxury Audi a lot less taxing” and promises “Purchase an Audi before the Luxury Car Tax legislation is passed in the Senate, and until then, Audi will pay the proposed retrospective 8% increase”.

The offer applies to all new and demonstrator (under 2000km old) Audis priced over the LCT threshold and is limited until August 26, 2008 – the earliest opportunity for the Senate committee to report on the proposed eight per cent LCT increase.

“Whilst it is a potentially very expensive exercise, it is an opportunity to thank our customers for their support by making their purchase decision a simple one - even at a confusing time,” said Mr Hofmann, whose comments were echoed by Alfa Romeo Australia general manager Edward Butler, who argued that “the implementation of this tax rise and the confusion surrounding it has caused considerable uncertainty in the marketplace.

“We have acted to ensure that customers know exactly where they stand during this period of uncertainty regardless of the outcome of the Senate inquiry into the luxury car tax rate rise.

“To automatically pass on the tax rise during this period of uncertainty is not commensurate with our value-for-money policy, so we have worked with Alfa Romeo in Italy and our dealers to remove the price rise completely until this uncertainty is resolved,” said Mr Butler.

Similarly, Volvo Car Australia managing director Alan Desselss said the proposed tax increase has caused confusion in the marketplace and doesn't give the industry enough time to prepare.

“Customers should not be expected to pay for a tax increase that may never come into effect, so there will be a joint initiative between Volvo Car Australia and its dealer network to absorb the proposed cost until the tax increase is legislated, or further clarification is provided,” said Mr Desselss.

Most luxury brands recorded significant sales increases in June as buyers fast-tracked transactions to beat the LCT rise, with Rolls-Royce selling six vehicles last month (triple the number sold in June 2007), Ferrari shifting 18 cars (up from 10 last June), Maserati moving 18 models (compared with 13 month-on-month) and BMW selling a massive 497 X5s – more than 65 per cent up on its June 2007 tally of 300.

Unlike Audi, Volvo and Alfa Romeo, those companies have all passed on the LCT rate rise to customers, as have Mercedes-Benz, Lexus, HSV and FPV.

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