Best time ever to get a new car !

Now's the best time ever to get a new car –and?if you can get a novated lease grab one !

With household energy bills surging, mortgage rates on the increase and house prices falling it’s a surprising statement to make but now could be the very best of times to get a new car !

How come ?

Used car prices have rapidly increased since pre-Covid times and are now at their peak. The price increases were driven by lack of new car availability this dried up the supply of cars from fleets and rental companies. Whilst new car supply is still massively impacted by electronic chip shortages and other critical components there are some signs that these are abating as we approach quarter 4 2022 and the used car prices have started to show signs of reducing just slightly off their peaks

Used car market expert Daniel Werzberger?CEO of Carbuyers has observed the pricing strength of the used car market. “ I am seeing cars after three years retain 80% of their original list price. The post covid used vehicle pricing volatility has been remarkable and the highs in the market never previously seen. Our customers are delighted with the sales proceeds they get?from us for their used car. We use accurate car valuation tools such as Autograb?to monitor the market to ensure we capture the prevailing market prices and can offer the most up to date and contemporary pricing. Now is a good time to cash your used car in if you can and secure these prices.”

However there are a couple of issues that need to be considered before cashing in your used car - new car prices and new car availability.

New car prices have increased but they have not gone up as fast as used cars – general increases of 40% have been experienced in the used car market and in some cases a late used car can fetch more than its original list price.?New cars have increased but not to th esame extent - yet !

Accordingly the gap between your existing used and new has narrowed. It may start to widen as used car prices soften and new car prices increase.

However there is better news.?

To make it even more attractive to get a new car now throw into this mix a generous tax break for anyone in a tax paying job who has access to a Novated Lease. The new Australian Government wants to stimulate the transition of cars from internal combustion engine to lower or no?carbon emitting cars. Its looked at how fiscal policies across the world can make a massive difference to the choices people make when it comes to deciding on a car and hence the Electric Car Discount Bill was introduced to parliament on 27 July 22 by the treasurer Hon Dr. Jim Chalmers.

The?Bill is designed to be good for motorists, good for employers and their workers, and good for climate action. It implements the Government’s plan to remove fringe benefits tax (FBT) to make electric cars cheaper as a company or novated lease car. As such the legislation will amend the Fringe Benefits Tax Assessment Act 1986 to exempt from FBT the use of eligible electric cars made available by employers to employees.

The?FBT exemption will apply to battery electric cars, hydrogen fuel cell electric cars and plug?in hybrid electric cars.

There is a caveat which is the exemption will only be available for eligible electric cars with a first retail price below the luxury car tax threshold for fuel efficient cars ($84,916 for 2022?23) first made available for use on or after 1 July 2022.

What this means is that if a car valued at about $50,000 is provided by an employer through this arrangement the fringe benefits tax exemption would save the employer up to $9000 a year. For individuals using a salary sacrifice arrangement to pay for the same model, their saving would be up to $4700 a year.

The government has stated that FBT exemption will be implemented as an ongoing measure and reviewed after three years in light of electric car take?up to ensure it remains effective.

In addition?the Government will also introduce changes to remove the five per cent import tariff for eligible electric cars for those vehicles outside existing free trade arrangements.

The luxury car tax threshold is a limitation for sure but with increased demand from consumers more OEMs will offer cars and at more competitive price points – currently the range of eligible cars are somewhat restrictive and somewhat short of supply.

What next ?

Novated Leases have been described (by me amongst others) as the most cost advantageous way of funding and running a car thanks to the generosity of the ATO in allowing payments to be made from pre tax income. Slightly off-setting this advantage was a benefit in kind taxation which was off set by a contribution in post-tax salary by the novated driver. Costs that would have been otherwise incurred.

Now the novated lease does not have benefit in kind taxation on these electric cars it means that all costs can be pre tax. This makes having a company car or a novated lease electric car very attractive indeed.

Taking the Treasury’s $50,000 EV example :

Firstly the car may be cheaper as an example the Nissan Leaf would have its Tariff removed worth $2,000 off the new price.

Whilst individual circumstances differ paying outright for the car and its running costs over 5 years would be over $70,000

A Novated Lease with the FBT exemption would cost under $60,000?

For novated lease providers, the proposed Fringe Benefits Tax exemption could see a massive boost the uptake of electric cars purchased via a novated leasing arrangement or additions to their fleet where the vehicles have any personal use.

Currently the take-up rate of cars acquired via a novated lease across Australia is less than 10 percent. There are many reasons why such an attractive benefit has such a low take -up. Firstly??some?employers are reluctant to offer the benefit to employees ( even though it actually saves them money through reduced payroll tax ) secondly there is a lack of understanding around what has been seen as complex financial instrument – the industry is at fault here describing the lease as a three way partnership between employer employee and the lessee as opposed to the cheapest way of acquiring a new car.

Nigel Malcolm, CEO?at Novated Leasing Company Fleetcare said the move was a positive one :

“The messaging behind this FBT exemption will allow us to have more of cut-through – it will be easy for us to tell our customers and their employees?who have the concession available to them that they should consider an electric car on lease. We can also help source that elusive new car. We will be taking the messaging to our existing and new customers and help start propelling electric car take up"

Employers perspective

So now is a very good time to roll out a novated lease program to your employees. It costs less than nothing ! The stimulus provided by the tax break will see an increasing number of EVs on offer and on the roads.?It’s a very good time to get that EV fleet strategy up dusted off and put into action. The easy steps are to get an employee base into an EV novated lease and maybe encourage this with work place charging stations – it may even encourage a return from WFH !