Japanese car makers weighing up how to pass on free-trade agreement benefits

Included in the Japan Australia Economic Partnership Agreement (JAEPA) reached overnight by prime ministers Tony Abbott and Shinzo Abe is the removal of the five per cent import tariff on new Japanese vehicles.

Almost one third of all new cars sold in Australia (including more than 350,000 last year) are built in Japan, including popular models from Toyota, Mazda, Nissan, Mitsubishi, Subaru, Honda, Suzuki, and luxury manufacturers Lexus and Infiniti.

Toyota Australia media and external affairs manager Beck Angel said it was “too early to speculate on pricing” changes for its Japan-built vehicles, insisting the car maker would take its time to “assess the implications of the free-trade agreement on our import and export vehicles”.

Toyota recently launched the new Corolla sedan in Australia, a car that is now sourced from Thailand rather than Japan. The switch meant that, at the time, the new model was not be subject to a five per cent import tariff - but rather than simply discounting prices across the range, Toyota said it gave buyers the benefit of additional standard equipment.

Mazda Australia public relations senior manager Steve Maciver said the company would likewise wait and digest all the information when the FTA was finally signed, but cautioned consumers against reports claiming they could expect to immediately save five per cent on all Japanese vehicles.

“I’ve read reports with people saying you’re going to save $1500 on your average $30,000 car. That’s not the way it works, and I’m surprised to be hearing this from some quarters,” Maciver said.

“The way that it works is that the import duty is applied at the landed cost of the car, the cost that we pay to Mazda Motor Corporation to get a car into the country, so obviously that price is lower than the full list price and the import duty is actually applied to that.

“In terms of what the potential savings or value-add could be, if you look at a mid-spec Mazda 3 with a list price or around $25,000, you’re looking at around about $800 is what the potential value add or saving could be.

“People are just taking $30,000 and whacking five per cent off it, but that’s not the way it’s applied and that’s not the savings that people are going to see.”

Maciver said Mazda’s strategy in passing on the benefits of the FTA to Australian customers would be influenced by a number of factors, including market conditions and competitor actions.

“One of the things that is significant about this free-trade agreement is that there hasn’t actually been any date set on it yet, so we’re not sure if it’s going to come in this year, whether it’s going to come in three years, we just don’t know.

“At that point we’ll do the usual study that we do, we’ll have a look at the market, we’ll have a look at what our competitors are doing, we’ll have a look at where our products are sitting, and one other thing we have to do that is very important is we have to take a look at where exchange rates are sitting. The elimination of a five per cent import duty can very easily be wiped out by a currency exchange difference, so that’s one of the things we have to look at.

“Looking back historically I think when the last free-trade agreement came down I seem to recall most of the car brands made the decision that they were going to reduce prices. It’s too early to fully say exactly what’s going to happen, what I would say is that there’s absolutely potential there for savings for customers, whether that’s a saving in terms of price reduction or whether that’s a value add in terms of equipment.

“One thing’s for sure: offering the best value product we can to our customers, that’s our strategy currently, that’s not going to change going forward, so we absolutely have to make sure that we continue to do that.”