15 October 2014
Motor Vehicle Standards Act Review
Department of Infrastructure and Regional Development
GPO Box594
Canberra ACT 2601
Dear Sir/Madam
Thank you for the opportunity to provide a submission to the discussion paper for the
2014 review of the Motor Vehicle Standards Act 1989. This submission contains no
confidential information and I consent to it being made publicly available.
My submission covers two issues:the proposed process for developing the
regulatory impact statement; and option 7 in the discussion paper.
The recommendations and findings from my submission are:
Recommendation 1: The Department of Infrastructure needs to release the
regulatory impact statement for public consultation before submitting it to the
Government for consideration.
Recommendation 2:The regulatory impact statement should estimate the costs and
benefits of the definitive proposal for option 7.
Recommendation 3:Consumer protection for personally imported new vehicles
should be left to consumer laws.
Recommendation 4:The Department of Infrastructure needs to determine whether
Australia's new cars are more expensive or not than overseas for the regulatory
impact statement.
Recommendation 5:If the Department of Infrastructure is unable to determine
whether Australia's new cars are more expensive or not than overseas, it should
implement the option 7 proposal and let the market decide whether new car prices
currently overpriced or not.
Finding 1: The potential benefit of option 7 is around $2.6 billion annually for
Australian consumers.
Finding 2: My option 7 proposal addresses key concerns raised by Ministers.
Finding 3:Implementing option 7 would help Australian families with the cost of living
pressures.
An additional round of public consultation is needed on the regulatory
Impact statement otherwise the process is inconsistent with the Abbott's
Government directive on cutting red tape
Page 5 of the discussion paper states:
We would like your feedback on how the Government might reform, enhance or
amend the current arrangements to deliver more efficient and effective regulation of
motor vehicle standards. Feedback from this consultation process will inform a
Regulatory Impact Analysis process. A Regulation Impact Statement will be
developed to be provided to the Government for consideration later this year.
However, it is unclear to me whether the regulatory impact statement will be made
publicly available for comment. The text on page 5 looks to me that the Department
of Infrastructure (the Department) will finalise the regulatory impact statement and
submit it to the Government without any additional public consultation.
The Australian Government Guide to Regulation released by the Hen Josh
Frydenberg in March 2014 states the following in the section titled "RIS Question 5:
Who will you consult and how will you consult with them?" on page 39:
In this section of the RIS, you must:
> Explain the purpose and objectives of consultation.
> Outline a plan for conducting consultation.
> Explain who should be consulted-and who does not need to be consulted.
> Outline a strategy for the most efficient and meaningfulconsultation.
> Summarise the major topics to be covered and what issues might be raised.
In the event your policy proposal is market sensitive, or if you believe open public
consultation may compromise your policy analysis, you should discuss your
consultation options with OBPR at the earliest opportunity.
The Australian Government Guide to Regulation goes on to state that full public
consultation on a regulatory impact statement is the default position of the Abbott
Government (page 42). Full consultation brings the benefit of encouraging openness
and trust in a decision making process.
If the Department is planning no further public consultation period before finalising
the regulatory impact statement for the Government, this is inconsistent with the
clear directives of the Abbott Government about developing regulatory impact
statements as stated in The Australian Government Guide to Regulation.
Given there is only descriptive analysis in the discussion paper, stakeholders need
more information about the cost and benefits of each option to provide meaningful
feedback. Stakeholders need to be provided with the regulatory impact statement for
public comment before the Department considers this additional feedback and
makes any necessary changes to the regulatory impact statement for Government
consideration.
I argue that full public consultation needed on the regulatory impact statement. This
is the default approach in The Australian Government Guide to Regulation.
Recommendation 1:The Department of Infrastructure needs to release the
regulatory impact statement for public consultation before submitting it to the
Government for consideration.
Benefits of Option 7
The rest of my submission is primarily focused on option 7- reduce the barriers to
personal importation of new vehicles and the importation of quality second-hand
vehicles.
I made two submissions to the Productivity Commission's inquiry into Australia's
automotive manufacturing industry (Smith 2014a, Smith 2014b) as well as a previous
submission to the 2013 public consultation on the need for a review of the Motor
Vehicle Standards Act information paper (Smith 2013).
In these submissions, I argued that the current importation restriction on new and
used vehicles leads to higher new car prices for Australian consumers.For example,
Australian consumers paid $2.6 billion more for new cars in 2011 compared to
overseas consumers (see Smith 2014a for the calculations).The current importation
arrangements restrict competition and allow the car manufacturers to charge
Australians higher new car prices. Allowing the private importation of new and
modern used cars would make the Australian car market more competitive. Where
car manufacturers selling vehicles in Australia were previously shielded from
international competition, they would now have to compete vigorously with parallel
imports. The potential benefits of removing these import restrictions would be around
$2.6 billion annually for Australian consumers.
Finding 1: The potential benefit of option 7 is around $2.6 billion annually for
Australian consumers.
A definitive proposal for option 7
Option 7 in the discussion paper is currently crafted as a vague proposal. A definitive
proposal for option 7 is that the Motor Vehicle Standards Act 1989 is amended to
allow the importation of new or modern used vehicles that meet the following
requirements:
•
•
•
no more than one year old when shipped from the country where the vehicle
was purchased
are right-hand drive vehicles from the following OCED countries: United
Kingdom, Republic of Ireland, Japan and New Zealand,and
undergo the normal roadworthiness procedure at the Australian port.
These requirements mean that the used vehicles would meet the current Australian
Design Rules safety and emissions standards and therefore would not lead to a
decrease in safety and emissions performance of the Australian vehicle fleet.
Question 7-19 in the discussion paper asks could constraints around a vehicle's age
and country of origin effectively manage the safety, environmental and theft risk to
the community? My answer is yes; my proposal above would effectively manage
these risks.
Recommendation 2: The regulatory impact statement should estimate the costs and
benefits of the definitive proposal for option 7.
Analysis of my option 7 proposal with Ministers' statements
Ministers are key decision makers to whether the Act is amended to allow new or
modern used vehicles to be personally imported into Australia. Therefore, it
important to assess my option 7 proposal with public statements made by Ministers.
The Hon lan MacFarlane, Minister for Industry stated: "No decision has been taken
by the Australian Government to reduce these restrictions and the Government has
no intention of allowing Australia to become the dumping ground for other countries'
old second hand vehicles" (MacFarlane 2014).
The Hon Jamie Briggs, Assistant Minister for Infrastructure stated: "The Productivity
Commission's proposal to reduce restrictions on second-hand imports is one of many
ideas canvassed in the paper. No decision has been taken by the Australian
Government to reduce these restrictions and we have no intention to allow Australia
to become the dumping ground for other countries' second-hand lemons" (Briggs
2014).
My proposal for option 7 addresses Minister MacFarlane's concerns about allowing
old second-hand vehicles into Australia by only allowing new or modern used
vehicles up to one year old into Australia.
My proposalfor option 7 also addresses Minister Briggs' concerns about allowing
other countries' second hand cars. Only new or modem used vehicles would able to
be imported.
Finding 2: My option 7 proposal addresses key concerns raised by Ministers.
Enhancing competition for Australian consumers
Allowing consumers to personally import new or modern used cars would ensure
more competition in the Australian vehicle market. This would benefit Australian
consumers in lower prices for cars.
The FCAI has argued that "Australia has a highly competitive new car market with 67
brands selling over 350 models. This high level of competition is benefiting
consumers, with a vast majority of models sold in Australia for a cheaper price than
other right-hand drive markets" (FCAI 2014).
If Australia's new car market is highly competitive as stated by the FCAI, then
allowing consumers to personally import new or modern used cars would not impact
on this highly competitive marketplace.
Not all of the automotive industry shares the FCAI's view. For example, a Brisbane­
based dealer, Mr Lynton Rose, has argued that the car companies are "ripping off'
Australians for new cars as reported in a GoAuto article.I have reproduced relevant
parts of this article below.
A Queensland luxury car dealer has slammed a report that Australian vehicles are as
cheap, or cheaper, than overseas markets as "not worth the paper it's written on':
and accused high-end car-makers of ripping off buyers.
In a rare look behind the veil at a part of the Australian new-car market that does not
often speak its mind in public, Brisbane-based Motorline chairman Lynton Rose
savaged a Federal Chamber of Automotive Industries (FCAI) report released last
week that claimed Australian buyers were not paying over the odds for vehicles.
Mr Rose's Motorline, meanwhile, sells BMW luxury cars, as well as Mini premium
cars.
Mr Rose has told GoAuto that he believed there was no reason why he could not sell
a top-of-the-line BMW 7 Series in Australia for around $120,000- an almost
$200,000 saving over current pricing - but for the pricing policies of the luxury car­
makers here. "Australians are being ripped off on pricing and that is easily proven by
the simplest of investigations," Mr Rose said.
"This is not an issue of a one or two or three thousand dollars' price difference
between markets and variance in specification - this is about the big picture of an
extremely excessive high-pricing policy for cars sold into the Australian market.
"You only have to ask one question. If the manufacturers are so wonderful with
providing pricing parity for Australia when comparing it to the world, why commission
a report to justify their position?
"I don't think a day goes by and someone doesn't come into the dealership and tell
us our prices are outrageous compared to overseas," Mr Rose said.
"We've been ripped off for years. We could have had everyone that is driving a
Holden Commodore driving a BMW 3 Series or a Mercedes-Benz C-Class - and
what's the better car?
''There's no debate. All we are doing is depriving ourselves as a nation of the best."
Mr Rose said the FCAI report, which claimed a mix of mainstream and luxury cars
sold in Australia were as cheap, if not cheaper, than equivalent cars sold in Britain
and New Zealand, was a thinly veiled attempt to protect the Australian car industry
from grey imports- a move suggested under a Productivity Commission report into
the post-manufacturing new-car industry.
Mr Rose's view supports my previous analysis that, in 2011, Australian consumers
paid $2.6 billion more than overseas consumers for new cars (Smith 2014a).
Reduced car prices for Australians will help with cost of living pressures
Allowing Australians to import new or modem used cars by changing the Motor
Vehicle Standards Act 1989 would result lower new car prices in Australia. The best
result would be if global vehicle manufacturers decide to price the Australian market
like other overseas markets. Under this scenario, not many people decide to
personally import a new or modem used car because the there is now very little price
difference and consumers get the benefits of being covered by consumer law and a
manufacturer's warranty. This would be a great result for consumers. However, this
result is only possible by allowing Australians to import new or near new cars, forcing
manufacturers to cut new car prices in Australia.
Given an outcome of the Motor Vehicle Standards Act is market access that seeks to
achieve the policy outcome of consumer choice and enhanced competition (see
page 22 of the discussion paper), then allowing Australians to import new or modem
used cars would maximise this policy outcome. In turn, this would help Australian
families with the cost of living pressures.
Finding 3: Implementing option 7 would help Australian families with the cost of living
pressures.
Risks to the consumer
Importing a new car to Australia has risks for the consumer. However, governments
should leave the risk for the consumer to manage. This is the case with personally
importing electronic goods, such as cameras and tablets, from overseas. This is also
the case with personally importing a boat or an aircraft. In 2013, around 10400
vehicles were imported under RAWs and Iam unaware of any significant consumer
problems arising from these imported used vehicles. There were no submissions
from consumers to the recent Productivity Commission's Automotive Review that
mentioned this as a current problem with RAWs.
The appropriate role for governments in helping consumers manage the risk of
importing a new car to Australia is to provide information about the risks, for
example,how the new car is unlikely to be covered by warranty. Given 10400
vehicles were imported under RAWs in 2013, these risks are currently present in
Australia for subsequent buyers of RAWs vehicles.
Question 7.21 in the discussion paper asked should consumer protection for
personally imported new vehicles be left to consumer laws? My answer for this is
yes. The discussion paper provides no strong arguments for why additional
government interventions are needed beyond the strong consumer laws already in
place in Australia.
Recommendation 3: Consumer protection for personally imported new vehicles
should be left to consumer laws.
The Department of Infrastructure must stop sitting on the fence and determine
whether Australia's new cars are more expensive or not than overseas
Between now and the release of the regulation impact statement, the Department of
Infrastructure needs to determine whether Australia's new cars are more expensive
or not than overseas. The discussion paper sits on the fence with this issue. The
following text is from page 42 of the discussion paper.
Rightly or wrongly, there is a clear public perception, fuelled by case studies such as
those above, that Australians are paying more for their vehicles in the premium
classes and that this is unjustified. It must again be stressed however, that
undertaking a true like-for-like analysis comparing of the cost of models across
markets is difficult given the likelihood of specification variations between markets
(some of which may not be obvious to consumers). This has led some stakeholders
to argue that a true like-for-like comparison (one which also excludes taxes) might
indicate there is much less variation in passenger car prices between Australia and
comparable countries with variations only likely at the very upper end of the fleet.
The price difference for cars sold in different markets can, at times, be a result of the
manufacturers selling different versions of an otherwise identical good. For instance,
manufacturers may vary the variety of included car options and features available in
each country, e.g.by including air conditioning as a standard feature as opposed to
pricing it separately. Such decisions account for cross-country price differences of
around 10 per cent across Europe.
The European Commission can easily tell the price difference between countries for
a new car. This is because they have commissioned research to answer the
question. Indeed, the European Commission is very concern about giving European
consumers a fair go for new cars because they publish annually a report (see
European Commission 2011) on the price of new cars across European countries.
Given the European Commission has overcome the obstacles argued by the
Department on page 43 of the discussion paper, surely the Department can
commission some independent research and come up with a definitive answer to
whether Australia's new cars are more expensive or not than overseas. This needs
to be answered so the Department can provide the analysis for option 7 in the
regulatory impact statement.
If for some reason the Department cannot answer this question, then it should take
the approach that a minimum government intervention option is likely to be good for
Australian consumers and implement my option 7 proposal (this ensures the safety
and environmental outcomes of new or modern used cars). This will ultimately let the
market decide whether new car prices in Australia are currently overpriced or not.
Recommendation 4: The Department of Infrastructure needs to determine whether
Australia's new cars are more expensive or not than overseas for the regulatory
impact statement.
Recommendation 5: If the Department of Infrastructure is unable to determine
whether Australia's new cars are more expensive or not than overseas, it should
implement the option 7 proposal and let the market decide whether new car prices
currently overpriced or not.
I have also made comment on the risks presented in Table 3 of the discussion paper.
I argue that these risks are incorrect described. These comments are in the
appendix.
Thank you again for the opportunity to make a submission.
Yours sincerely
Peter Smith
Southbank, Victoria
Appendix: Description of risk
Table 3 in the discussion paper incorrectly describes the risks. The discussion paper provides
no rationale of how the department determined the risks but states "broadly, risks increase
with vehicle age as well as the difficulty in assessing whether a vehicle meets, and
continues to meet, required standards." Page 26. This described risk can be easily managed
to determine whether a car meets the required safety and emissions standard. Indeed,
around 10400 vehicles were imported in 2013 under RAWs that shows that this risk can be
easily managed. I have described this initial risk as "medium" and after treatment (e.g. testing
and certification by a qualified engineer or mechanic) the risk is "low". For the other three
vehicle descriptions, I have described the initial risk as "low".
Amended Table 3
Vehicle description
Initial risk
Standard to be met
Final risk
after
treatment
I
Full compliance
New vehicle
Personally imported
new vehicles
Near new used
vehicles built to a
comparable
international
standard
Low
Low
Meeting agreed
international standard
taken to meet ADR
Low
Meeting agreed
international standard at
time of manufacture
taken to meet ADR
Satisfy Motor Vehicle
Standards (Approval to
Place Used Import
Plates) Guidelines 2006
(No 1)
Other Used
Medium
Low
Low
Low
References
Briggs 2014:
http://www.minister.infrastructure.gov.au/jb/releases/2014/September/jb090_2014.as
px
European Commission,Car prices within the European Union, 1 January 2011
FCAJ 2014: http://www.fcai.com.au/news/news/all/all/364/consumers-benefit-from­
australia-s-competitive-car-market
GoAuto 2014.Brisbane-based dealer slams FCAJ claims that car prices here are not
overpriced, GoAuto News, 13 August 2014,
http://www.goauto.com.au/mellor/mellor.nsf/story2/2A882E306540E1D2CA257D310
OOC9DE6
MacFarlane 2014: http://www.minister.industry.gov.au/ministers/macfarlane/media­
releases/government-supports-automotive-industry-transition
Smith 2013:
http://www.infrastructure.gov.au/vehicles/mv_standards_actlfiles/174_Smith_Peter.p
df
Smith 2014a: http://pc.gov.aul_data/assets/pdf_file/0003/134256/subpp262automotive.pdf
Smith 2014b: http://pc.gov.au/_data/assets/pdf_file/0004/134959/subpp281automotive.pdf
The Australian Government Guide to Regulation:
http://www.cuttingredtape.gov.au/sites/defaultlfiles/documents/australian_governmen
t_guide_regulation.pdf