Rip-off or not a rip-off?

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This is not something i am remotely familiar with but it IS Friday, and the start of a new financial year so why not look at something a little bit different?

There is a group called Private Fleet, who offer a vehicle buying service. Their website has recently published an article suggesting the prices Australians are paying for new cars are considerably higher than those paid by UK or US buyers. Here is the article

Are new car prices in Australia a ripoff?

Are new car prices in Australia a rip-off?

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Some of the commentary on the article is quite astute, as people question whether or not it really does constitute a rip-off. Here are a few key points that immediately come to my mind when spending a moment pondering the issue over pumpkin soup this afternoon…

  • Scale – more than anything, scale would have to be an issue in global pricing. Australia’s population is simply a non-event in global terms. Our national wealth is the major balance to that but it does not do much to reverse the pricing imperatives of scale – if anything, it simply reinforces the ability of the population as a whole to wear price differentials.
  • Proximity – transport costs make up a large chunk of any boxy, heavy and relatively delicate item. Proximity to the producer, proximity of the buying customers to access or distribution points. This would to some extent help explain the relative parity for Nissan, Toyota and Mazda.
  • Australia has only three situations offering scale with proximity – Melbourne, Sydney and Brisbane. There is the ability to shift excess stock to areas of excess demand and thereby more easily obtain market equilibrium and therefore a sale price more robustly connected with global equivalents. Perth, Darwin and multiferous smaller regional centres simply don’t cut the custard in this regard.
  • Currency – It’s not just that Australia’s currency has increased in relative value. That could be expected to show price changes relatively quickly. However, the volatility of the currency is such that importers would need to hold quite a large wad of reserve in place just to ensure that they can deliver product at a reasonably consistent price at the local level. To my mind, this would be the greatest impediment to pricing parity. Even experts cannot agree on the likely position of the Australian dollar a year from now, so what chance does the average importer have? If it was your bank account that would be impacted, chances are that you would want quite a bit of surplus to build up before you started passing on too much of the currency benefit to your wholesale buyers. You could very well find yourself running short within a few months if the currency embarked on a swing of the size that we have been seeing in the last 10 years.
  • Packaging – A car purchase is much more than just the vehicle itself. There is the after sales service, the financing, the insuring and the decking out with palava – all fundamental to getting behind the wheel of your dream vehicle. It takes a large pool of working capital and very expensive infrastructure to get all of that in place, and all of that has a cost. Cars are not like books or CD’s. Amazon can’t easily warehouse cars and then sell, box and ship ’em to your door. Imagine the postie trying to deliver your Porsche? And would you really want to be arguing with an internet site when your car arrives in the mail with a left-hand drive configuration?
  • Prestige – if you buy yourself or your partner the latest Porsche or BMW, do you want to shop for it, have it serviced or collect it from anything other than a prestige, pristine showroom? It’s all gonna cost, folks. Divide the premium on the Ferraris, Lambourghini’s (did i spell that write?), BMW’s and Mercedes by the number of vehicles sold and you have probably come up with the depreciation cost of the state’s showrooms and workshops.

Of course, the answer to any such issue is usually a mix of many smaller issues. It will be interesting to see if the petition gathers any steam over coming months.

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  1 comment for “Rip-off or not a rip-off?

  1. Peter
    July 2, 2011 at 12:45 pm

    Rip off.

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