The ongoing coronavirus pandemic has wreaked havoc in economies around the world, leading to a complete pause in most industries. Like the rest of the world, the Australian automotive industry has taken a severe hit from the resulting recessionary pressures. Considering that it has been weighed down by consecutive negative growth for nearly two years now, this crisis has sent it back reeling once again. With a disrupted supply chain and the expected fall in the purchasing power of customers, it no doubt needs all the help it can get.
How Bad Was the Industry Performing before COVID-19?
In Australia, new car sales had already been on a decline for the past 23 months, a situation evidently worse than the impact of the global financial crises of 2008 that led to a 15-month recessionary trend in the sale of new cars, according to Tony Weber, the CEO of the Federal Chamber of Automotive Industries (FCAI). In CY 2019, sales of new vehicles declined by 7.8% on a year-on-year basis, which was the most significant decline in recorded history. To say that the Covid-19 crisis caught it at its weakest is an understatement.
What Was the Coping Mechanism Installed to Deal with Falling Sales?
According to James Voortman, the CEO of the Australian Automotive Dealer Association (AADA), the declining sales of new cars could not justify the high costs incurred by car dealerships. Hence, around 3,200 new dealerships operating in Australia had to cut down on operating costs - some needed to lay off workers, while others had to close shop. Voortman added that if the ongoing economic crisis persists, many dealerships and car parts providers would have to shut down, too.
How Will the Stimulus Package Announced by the Federal Government Help the Australian Automotive Industry?
The federal government committed $320 billion to help soften the impact of the lockdown on businesses and households.
Out of this sum, $700 million has been allocated for businesses, allowing them to write-off assets, including vehicles, with a value of up to $150,000 (this threshold was previously set at $30,000). Businesses with an annual sales figure of under $500 million by 30th June 2020 were allowed to benefit from this policy as well. Previously, only companies with a gross annual sales figure of under $50 million were included.
Another incentive from a $3.2 billion fund is expected to boost investment over the next 15 months (until June 2021), whereby businesses making under $500 million in annual turnover would be able to write-off an additional 50% of their asset's value. This measure makes it cheaper for companies to invest in vehicles in the long run, as asset depreciation costs would be lower in the following years.
Some relief has also been provided to sustain the human resources employed in small businesses, including those operating in the auto industry. A $1.3 billion fund was set up for this sector, benefitting an estimated number of 120,000 people. Under this policy, eligible employers can apply for government subsidy of up to 50% of their employee's wages accruing between January-September (both months inclusive). This policy would be especially helpful for businesses operating in secondary automotive markets, selling car parts and car accessories.
What Assistance Is Available for Small and Medium Businesses?
The federal government has allocated a $6.7 billion fund, which will be provided as cash assistance to employers making under $50 million in turnover for the half-year period between Jan-June 2020. This payment will range from $2,000-$25,000 per eligible business, and will not be taxed by the government. Approximately 690,000 businesses employing an estimated 7.8 million people will receive relief under this scheme.
What Is the Way Forward for the Australian Auto Industry?
These policies were designed to provide relief, including dealerships and car part businesses. Voortman has also recommended that eligible businesses should take advantage of these schemes and invest in a wide variety of vehicles and buy them from their local dealerships before the 30th June deadline.
These stimulus package measures came into force in 10th March, and it is estimated that around 3.5 million businesses in Australia would benefit from them. About 99% of all companies have some benefit to derive from these schemes.
Voortman has urged the government to extend the instant asset write-off scheme beyond the 30th June deadline, as he estimates a greater impact on the automotive industry.
Also, he has highlighted that the auto industry may take a longer time to pick up as the industry was already in a downturn before the virus onset. Hence, the auto industry may not see as substantial an increase in investment influx as may be expected by policymakers.
At this time, the AADA has encouraged state governments to follow the stimulating practices of the federal government and introduce further policy actions that would provide industries with a much-needed boost. Such measures could include exemptions on stamp duty incurred on new car sales, for example.
Also, car dealers have high turnovers but very low-profit margins; hence, both the federal and state governments might need to reconsider some policy actions specifically designed for the car industry to provide relief to car dealerships operating around the country.
For more news and updates on the automotive industry and information on maintaining your car, visit www.carpart.com.au to access how-to guides, Carpedia, and other educational materials. Also, you can look for parts and accessories through our online auto parts buy-and-sell platform.
By Muhammad A. Lashari