Archives: Dealer Bulletins

AADA sub-committee was formed following release of ASIC’s 1st consultation paper in late 2015. Sub-committee consists of specialists in F&I including AP Eagers, AHG, Dealers, BDO and HWLE Lawyers.

Confidential submission prepared and lodged with ASIC on 11 March 2016 including reference to modelling by BDO on financial impact on dealer network.

ASIC released a 2nd second consultation paper on 3 June 2016.

ASIC Regional Commissioner asked for a copy of the financial model. A meeting took place in Sydney with ASIC on 8 June 2016 led by Deputy Chairman, Anthony Altomonte and a range of issues including the financial model was discussed.

ASIC subsequently asked AADA to address three questions: provide a model with no prohibitions up to 300 basis points; noting that car sales May 2016 to May 2015 has gone up by about 3.6 per cent do you consider profitability will also go up by 3.6 per cent; noting that the average loan term is 32 months, would the majority of consumers trade-up to new cars (so that longer terms could be expected to result in slightly fewer car sales).

AADA’s response to ASIC’s three questions was submitted on 22 July 2016 and included detailed modelling by BDO with the assistance of Andrew Bunce, AP Eagers. The modelling included “impacted” commissions based on volume (known as VBI which is a volume based incentive (VBI) based on net amount financed (NAF). This indicated that that any decline in NAF will result in a decline in VBI.

AADA’s response to ASIC’s 2nd consultation paper was submitted on 22 July 2016. It included an independent paper by Dr Rhonda Smith, Senior Lecturer in Economics at the University of Melbourne. In her opinion, “so long as information about the terms on which credit is available is accessible and transparent and consumers undertake some research, competition between credit suppliers will constrain the interest rate that car dealers can charge. This means that flex-commissions influence the relative return to dealers versus finance companies but has little, if any, impact on consumers.”

A second meeting with ASIC was held in Canberra on 17 August 2016 and was attended by CEO David Blackhall, Deputy Chairman Anthony Altomonte, Andrew Bunce AP Eagers, Mark Ward BDO and Policy Director Michael Deed.

AADA indicated a willingness to work with ASIC to address “outliers”, assist in the implementation of a positive credit reporting system, outlined an alternate arrangement using a “base rate” reference model and drew their attention to dealership agreement incentives based on achieving customer satisfaction ratings and “penalties” for not utilising OEM finance facilities.

ASIC indicated it had arrived at a position on origination fees paid by financiers.

ASIC indicated a position paper would be prepared in due course.

Regards,

David Blackhall
Chief Executive Officer

Auto Express UK released a report on 1 September 2016 titled “Car running costs: how much does it cost to run a car around the world?” It teamed up with Car Finance247 to investigate the costs of motoring globally, and how much UK drivers pay in comparison to drivers in 11 countries – UK, Germany, Russia, US, Venezuela, Brazil, South Africa, UAE, India, Japan and Australia.

It did not come as a surprise that Australian cars are amongst the most affordable in the world.

Where possible costs were compared using the Volkswagen 1.4 as a benchmark with the exception of Japan and India where an equivalent model was used. Australia ranked 3rd behind India and just behind Russia when comparing the lowest average cost of a new car. The average cost of a new car was highest in Germany.

Insurance costs in Australia are amongst the highest in the world and ahead of the UK and US. Standard grade unleaded fuel costs in Australia (A$1.25 per litre) is comparable to South Africa and twice as high compared to the US and UAE.

The Auto Express findings are consistent with the GoAuto report of 13 May 2016 derived from the authoritative international business magazine The Economist using the Big Mac index. It found that NZ based importers’ arguments to Government and regulators that cars are cheaper in NZ than Australia are without foundation. The Big Mac index has become a global standard, the subject of academic studies and referred to in economic textbooks.

The GoAuto article titled “Parallel imports are a furphy: Australia already has the lowest RHD car prices” referred to NZ importers using the “parallel import” argument as a Trojan horse in order to gain access to the Australian market. Such rent seekers have also referred to the Australian market as “Treasure Island” with a pirate’s loot in sight without any investment in Australia in facilities, equipment, training and support for local communities particularly in regional areas.

The Federal Chamber of Automotive Industries (FCAI) commissioned IHS Automotive in 2014 to conduct an international price and specification comparison between a range of vehicles sold in right hand drive markets of Australia, Japan, the UK and New Zealand. The IHS Automotive price comparison can be accessed on the FCAI website (www.fcai.com.au). It found that when comparing like for like a vehicle sold in Australia is almost always cheaper exclusive of Australia’s absurd luxury car tax(LCT).

Click here for the Auto Express report.

Click here for the GoAuto report.

Regards,

David Blackhall
Chief Executive Officer

Dear Dealer Principals and Colleagues

ASIC released its initial consultation paper on 4 December 2015 and AADA lodged a detailed response to ASIC on 11 March 2016. It included detailed modelling of the financial impact on the Dealer network and rebutted the prohibition on 12 separate grounds. In response ASIC agreed to meet with AADA in Sydney on 8 June 2016 to discuss the modelling and other issues raised by AADA.

On Friday 3 June 2016 ASIC released its 2nd consultation paper seeking further views of stakeholders on introducing a prohibition on flex-commission arrangements. Responses are required by Monday 27 June 2016. AADA has requested an extension of time to carry out further modelling and address the additional issues raised.

Summary

A summary of the major issues raised by ASIC:

• ASIC maintains its view that flex-commissions create an inherent risk of unfair conduct with a disproportional impact on vulnerable (but not credit impaired) consumers
• ASIC considers that even a small gap between the base rate and the maximum interest rate causes financial harm
• ASIC considers that a prohibition on flex-commissions could commence on 1 February 2018 allowing a transition period of 18 months
• In the transition period ASIC considers the interest rate should be set at no more than 150 basis points above the base rate commencing 1 November 2016
• On origination fees ASIC considers that the risk of origination fees being unfairly increased is real and substantial. ASIC does not accept that disclosure would address its concerns about unfair conduct
• ASIC is preparing to address its concerns through a “legislative instrument” under the National Consumer Credit Protection Act 2009 (NCCP Act). It should be noted that these changes are subject to Parliamentary oversight
• ASIC has acknowledged that its proposed changes will not affect novated leases and other commercial lending arrangements

AADA has been actively addressing these issues on your behalf via direct meetings and discussions with ASIC and with the expert participation of and guidance from senior finance executives within our membership. We are also working closely with FCAI.

We anticipate further direct discussions with the regulators as the matter progresses. We have also requested an extension to the due date for responses to the second consultation paper to ensure our submission is of the highest possible quality.

Members should be rest assured that this critical policy matter is receiving the highest possible attention from the AADA team. If, however, you or your team members have specific questions or concerns please do not hesitate to contact either one of us directly at any time.

 

For more information, contact:
David Blackhall, Acting CEO +61 413 007 833
Terry Keating, Chairman +61 418 668 277

We attach for your information a letter recently received from Senator Nick Xenophon, leader of the Nick Xenophon Team contesting the coming Federal Election.

As indicated in the letter, Senator Xenophon is a strong supporter of the AADA position on personal imports. The Nick Xenophon Team understands the catastrophic impact that parallel imports could have on employment, investment and growth in our businesses if the government proceeds with its plans. The Team also understands the loss of consumer protection that the government plan might cause.

According to the pollsters the Nick Xenophon Team is set to expand its representation in parliament and could play a significant role in the new senate following the election. The team is a great ally for us and for our cause.

Accordingly, it is incumbent upon us all – each and every member – to communicate and strongly support our position on personal imports.

You can help do this by:

• Posting the Senator’s letter on your website
• Circulating the letter to your staff, suppliers and customers
• Personally engaging with your local member and acquainting them with the facts on how your business drives employment, investment and growth in your community
• Speaking with your local media

The Senator’s letter also contains further suggestions on how you can help.

Many franchised dealerships are owned by family entrepreneurs. The present generation of operators in reality act as custodians of these businesses in perpetuity – working hard to pass the enterprises on to the next and subsequent generations.

Don’t let complacency or a mistaken belief that you can’t make a difference deter you from acting personally in this matter – everyone counts and every voice matters. This is one of the most significant issues we face in the near term. Please do not leave it up to others to drive the message home – take it on personally and energetically.

In closing let me thank the AADA Board and members for asking me to step in on an interim basis. I am excited and energised to be working with you all to make a difference for franchised dealers across the nation.

Please call me personally if you have questions, and in the meantime…

Good Luck and Good Selling!

David Blackhall
Acting CEO – AADA