Wednesday, 11 July 2012

Price discrimination: The Audi Arbitrage

Last week I posted on price discrimination and how Australian consumers often get charged much higher prices compared to international counterparts for exactly the same product.  I also posted about how people were getting around price discrimination by parallel importing products themselves into Australia (which is prefectly legal).

So far the consumers in Australia have only really been buying those products which are easily shipped by airmail to Australia (the evidence is in the massive increase in business Australia Post has seen through it's parcel delivery service) however I wondered whether this trend would catch on with products that were larger and much harder to import.  One of my friends is in the market for a new Audi A6 and he claimed that after looking at the US prices that it would probably be worth importing a car himself from the US rather than buying it from the dealer here.

I was intruiged by the idea and so decided to calculate whether there was an 'Audi arbitrage' available.  It's not technically a true arbitrage because I am not shorting an Audi at the Australian price (though conceptually you could enter into a contract to sell someone an Audi at the Australian price and then import one from overseas).  However the principle is what I am interested in.  For the purposes of this discussion I am going to ignore the left hand / right hand drive issues with importing from the US.

The Audi Australia website was good enough to break out the manufacturer price plus all the extras which I have outlined below.  Note that I am comparing the A6 Sedan Petrol 3.0 TSFI.

Item Cost
Manufacturer List Price $106,773
Dealer Delivery Charge $3,636
Luxury Car Tax $15,883
Registration (Vic) $748
Stamp Duty (Vic) $6,320
Drive Away Price $133,360

The exact same product is available on the Audi US website here.  There is no convenient break out of all the relevant 'add-ons' so I used an estimate of the doc fees from this website and took the highest value (i.e. $610) as a drive away price.  I have converted at the approximate current exchange rate of AUD/USD 1.01 and have added on all the possible extras I can think of to get a landed price in a Australia which I have listed below:

Item Cost
Manufacturer List Price US$49,900
Dealer Doc Fees US$610
Drive Away in US US$50,510
Drive Away in US A$50,010
Shipping $3,500
GST $5,001
Implied Warranty Value $3,000
Registration (Vic) $748
Stamp Duty (Vic) $1,375
Drive Away Price in Australia $63,634
Saving $69,726

I actually could not believe the amount you could save by importing the car yourself.  Even if I'm a bit off on some of the calculations (e.g. the value of the Warranty) there is ~$70,000 worth of savings!  That's almost half the retail price in Australia!

Here are some of the places where I estimated the additional costs:
  • Taxes: GST of 10% is payable on the purchase price (note I have not included the shipping cost in this but this would only add an extra $300)
  • Shipping: Shipping was fairly easy to estimate as there are plenty of places that will give you a quote.  See this importers website for an approximate cost (which I have used)
  • Warranty:  This was the hardest thing to estimate because it is essentially an insurance cost.  Finding the cost to insure a new car was actually pretty hard.  This US based website estimates the cost to be between $1000 and $3000 which should be the expected present value of any repairs done in the first 3 years.
This is where the MASSIVE savings are:
  • NO Luxury Car Tax:  LCT is payable on the value of the imported car (including GST).  I have assumed that this does not include shipping.  The threshold for LCT is $57,466 and the AUD value of the imported car (including GST) is $55,011 which is well under the limit
  • NO dealer delivery charge:  This one is obvious I think
  • Much lower stamp duty:  In Victoria (the state I've assumed your shipping to) the stamp duty rate is 2.5% for cars valued at $57,000 or less and 5.0% above this value.  You are saving a lot of tax by just having a lower cost base for your car
  • You save a fair chunk of the price discrimination:  You don't get to save all of it because Audi Australia would have cheaper shipping, insurance and servicing costs compared to you doing it yourself
The full comparison is listed below.  If I have missed any additional costs I would be happy to redo the calculations so please post a comment below.

Item Australian Retail Cost The Audi Arbitrage
Manufacturer List Price A$106,733 US$49,900
Dealer Fees A$3,636 US$610
Price before taxes and other A$110,409 US$50,510
Comparative A$ price A$110,409 A$50,010
Shipping $0 $3,500
GST $0 $5,001
Self Insurred Warranty Value $0 $3,000
Registration (Vic) $748 $748
Stamp Duty (Vic) $6,320 $1,375
Luxury Car Tax $15,883 $0
Drive Away Price in Australia $133,360 $63,634
Saving $0 $69,726

1 comment:

  1. Thanks very much - I appreciate the comment. Actually writing this post was heaps of fun.

    I've since done the calculation with several other products but the benefit was not as extreme as the example above.