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New Automotive Research Shows the Importance of Novated Leasing to the Australian Car Market

2013 has been a rollercoaster year for the Australian car industry.

From a manufacturing perspective, the prospects are bleak. Ford will cease production in 2016, Holden will follow suit in 2017 and the future of Toyota’s plant in Melbourne hangs in the balance. Automotive production is now a globally managed business and, as previously reported, China is where the action is.

From a sales perspective, there are good reasons to be cheerful. As reported by Focus2Move, year to date new car sales are up 2.7% on 2012, with the Ute and small to medium car segments making a particularly strong showing over the year. However, 2013 could have ended up very differently if the previous Labour Government’s proposals to remove the statutory cost rate of 20% for salary sacrificed and employer-provided car fringe benefits had been passed into legislation.

Just how important is the novated leasing segment to the industry? In November and December this year, ACA Research asked 167 fleet managers who look after fleets with 20 vehicles or more, about their use of novated leases and the impact of the proposed reforms to remove the statutory cost rate for vehicle fringe benefits.

Around two-thirds (65%) said their organisation offered a novated lease. Among these organisations, about a fifth (21%) of all employees are offered a novated lease but only 5% of all employees have taken one up. 

Novated leases table resized 600

So what has the impact been of the previous Government’s announcement to remove the statutory cost rate, which has since been overturned by the Coalition Government? For many organisations, the impact has been minimal. Of those that offer a novated lease, three quarters (76%) said that there had been no impact. A small proportion (4%) said that they have now stopped offering novated leases as a result of the proposed reforms. Many said that had the reforms gone ahead they would have stopped providing novated leases.  11% said they had stopped providing a novated lease until the incoming Liberal Government confirmed their intention to overturn the reforms. In the words of one fleet manager: “Initially the impact was big - we stopped novated leases for a while but now I think everything is back to normal.”

Had these reforms gone ahead, the impact on the automotive industry could have been significant, as evidenced by the 2.1% drop in sales in September 2013 compared with the same month in 2012.

Novated leases continue to be one of a number of mechanisms used for vehicle financing. ACA Research will be conducting further research in 2014 into automotive vehicle financing. Please click here to register your interest in this important and ground breaking study.

Topics: Financial Services Automotive Research