Volkswagen auction fallout – Leasing pause to hit VW Group as industry looks closely at residual values

By JOHN MELLOR and NEIL DOWLING

VOLKSWAGEN dealers, finance and leasing companies, and VW Group brand owners, are bracing for more bad news as distressing indications start emerging about the likely impact the manufacturer’s diesel scandal will have on residual values in leases, floorplan financing costs on rising stock levels and a sudden buyer disinterest in the brand.

As the drama continues to unfold, the head of the Australia Salary Packaging Industry Association Leigh Penberthy has told GoAuto that his company LeasePlus has recommended its clients stop leasing Volkswagens until the likely effect on residuals can be calculated into new lease agreements.

Meanwhile, dealers have told GoAuto that Volkswagen clearance rates at VW dealer auctions in Australia have dropped dramatically with as many as half the cars offered for sales as dealer used car stock being passed in.

Details are sketchy and a spokesman for the big Australian auto auction group, Manheim, said that the company could not comment on dealer auctions as they were conducted privately between car importers and dealers of that brand and therefore the results were confidential.

Finance companies are also watching dealer vehicle financing closely as floorplan loans are backed by the value of the stock. If VW values drop substantially, finance companies will be asking dealers for more cover for their borrowings – especially on stock that has a current stop-sale order on it from Volkswagen Group Australia.

The problem is also exacerbated by the long pipeline between Australia and vehicles ordered from the factory, with shiploads of cars fitted with defeat devices already on the water and likely to further flood the market with cars that people are now indicating they may want to avoid – even once the fixed is made.

Australia’s biggest online car marketplace, Carsales, has reported that buyer interest in both VW petrol and diesel cars has crashed since the scandal broke although there are some signs of a partial recovery in the past few days.

Carsales charts show that interest in diesels fell from 650,000 views to 300,000 views in the wake of the scandal but are now running at 400,000 views. Petrol VW models were also hit, falling from 850,000 views to under 500,000 although petrol views are now back over 800,000.

Where the scandal is especially concerning is in the finance and leasing area.

Glass’s Information Services national sales and marketing manager Nick Adamidis said that if 50 per cent of Volkswagen cars were passed in at dealer-only auctions, it could indicate residual rates falling by up to 10 per cent.

“That’s a big number and it means a lot of money would be lost,” he said

Mr Adamidis warned that it could be a kneejerk reaction to Volkswagen’s current problems but he expected “some initial deterioration” in Australia in the order of 3-5 per cent.

But he said if lack of demand persisted for six months “a 10 per cent reduction in residual values would be possible”.

Residual values (before scandal/after scandal)

Volkswagen Passat Wagon 130TDI Highline
New Car Price $46,990
3 yr Residual (before) 46%
Value in 3 yrs (before) $21,612
3 yr Residual (after) 36%
Value in 3 yrs (after) $16,916
Loss $4696
Volkswagen Jetta 103TDI Highline
New Car Price $36,490
3 yr Residual (before) 43%
Value in 3 yrs (before) $15,691
3 yr Residual (after) 33%
Value in 3 yrs (after) $12,042
Loss $3649
Volkswagen Tiguan 130TDI
New Car Price $39,990
3 yr Residual (before) 53%
Value in 3 yrs (before) $21,195
3 yr Residual (after) 43%
Value in 3 ysr (after) $17,196
Loss $3999
Skoda Yeti 103TDI
New Car Price $34,390
3 yr Residual (before) 44%
Value in 3 yrs (before) $15,132
3 yr Residual (after) 34%
Value in 3 yrs (after) $11,693
Loss $3439

Mr Adamidis said that residual values for Volkswagen Group products – including Audi and Skoda – in Europe had dropped 2-3 per cent last month while rival brand residuals increased.

Mr Adamidis said if there was buyer backlash to Volkswagen’s emissions deception then it would show up in new-car inventory levels.

“Companies such as Volkswagen order six to 12 weeks in advance. If the sales decline and the inventory remains high, there will be discounting of the brand and that will immediately affect residual values,” he said.

Mr Adamidis said that because the Volkswagen issue involved deception “you may see Volkswagen buyers leave the brand over this”.

LeasePlus CEO Leigh Penberthy, who is also the chairman of the Australia Salary Packaging Industry Association, said that his company was telling new customers to look at vehicles from alternative manufacturers until the Volkswagen problem was solved.

He said the residual price of leased Volkswagens involved in the scandal were likely to take a heavy hit but said that at this stage the future values of new VW product like new SUVs, utes and commercial vehicles that are not caught up in the scandal are unknown.

He said that the new-car volumes and the reaction from bidders at auction houses would be the first telltale signs of the damage of the Volkswagen Group problem in Australia. “We will be talking to auction houses around Australia to gauge reaction to the Volkswagen problem and that will be used to base our future residual values,” he said.

He said it may take a couple of months to formulate the effect of the Volkswagen emission problem in setting leases.

Mr Penberthy said even his staff members were caught up with owning leased Volkswagens, Audis and Skodas.

“Anyone with those makes, diesel or not, who either own it or lease it, needs to ask: What happens to the price of the car when I sell it? What happens when the fix arrives – will it change the performance and/or economy of the vehicle and if so, should I be compensated? Will it impact on the residual?

“The answer to the last one, I believe, is ‘yes’.”

Below: Carsales traffic records show a dramatic drop in interest in Volkswagen models since the announcement of the diesel scandal. Even petrol models suffered a reversal. However there are positive signs of a recovery in the past few days.

Salary Packaging Breakfast Forum

This is an open invitation for organisations who actively offer or are thinking of introducing a Salary Packaging program to their employees.

Overview

Organisations within the health industry, corporate, not-for-profit and government sectors will benefit from the latest updates within the industry with key speakers talking candidly about their thoughts and opinions.

You will also learn about the latest developments and advances in Salary Packaging software systems, significant drops in current market pricing for administering outsourced services, along with current FBT and other statutory changes that effect the industry.

This forum will also give you the insight you need to ensure you’re getting value from your existing salary packaging provider.

Hosted by:

Aytunc Tezay – LeasePLUS Group Chairman and Managing Director Aytunc Tezay is among Australia’s leading novated leasing and Salary Packaging experts and was integral in the inauguration of the Australian Salary Packaging Industry Association (ASPIA) and was its President for the initial four years.

Keynote Speakers

Elizabeth Lucas (Grant Thornton) – Elizabeth has extensive experience in providing Fringe Benefits Tax (FBT) and Salary Packaging advice to not-for-profit bodies, corporate clients and Government organisations. She regularly sits on various Federal Government tax based reviews or Boards which acknowledges her years of service and broader understanding of the wider industry.

Leigh Penberthy (ASPIA) – In his role as ASPIA Chairman, Leigh works closely with politicians and other key stakeholders to discuss, highlight, debate and promote the core issues relating to the salary packaging industry. Leigh regularly represents the Industry at Government and other Independent reviews as well as playing an important function in supporting the establishment of key policy settings at both a Federal and State level.

Linden Footman (SalaryPackagingPLUS) – With more than 15 years of experience , Linden has helped to maximise the Salary Packaging benefits for thousands of employees through the delivery of tailored packaging solutions across wide ranging industry sectors including corporate, health, emergency services, charities and not-for-profit. He is regularly called upon to help solve complex Fringe Benefits Tax matters while ensuring that the cost to the employer is kept to a minimum.

Claudio Scarpellino (SafeCode) – Claudio has been involved in the development of industry leading software across the automotive and finance sectors for a large part of his career. With this knowledge he has taken the reins of SafeCode as CEO where he was instrumental in the development of the leading web based Salary Packaging software known as MySalPack, as well as other Applications that are both advanced and innovative. Claudio’s wealth of experience in the building of long term relationships and a high degree of emphasis on delivering quality products and services is what sets him and SafeCode apart.

Dates and venue

Melbourne: Wednesday 28th of October 2015, 7.30am to 9.30am – Quay West Suites, Southbank, 26 Southgate Ave, Melbourne.

Sydney: Thursday 29th of October 2015, 7.30am to 9.30am – Quay West Suites,
98 Gloucester Street, Sydney.

RSVP:

If you wish to attend this free breakfast forum please send an email to rsvp@leaseplusgroup.com.au by the 18th October 2015. Alternatively, please call Natalie Gray on 0432 010 638. Please tell us which session (Melbourne/Sydney) you would like to attend, along with your contact details. We will contact you to confirm your registration.

Hostage to your Salary Packaging software provider?

Salary Packaging Alternative Rout

Aytunc Tezay
Founder & Chairman – LeasePLUS Group of Companies

Recently a LinkedIn contact working in the Health industry approached me to ask what other Salary Packaging software options are available in the market.
If you currently use the same tired, inflexible and uninspiring software as many others in the market place, I recommend you read on!
For many years software providers have provided the same old and clunky salary packaging software to its clients and ignored the need to upgrade the look, feel and functionality of its product. My LinkedIn contact was told that their software was being refreshed, however it will come at a cost through significant higher licencing costs. The alternative is….. well… there isn’t an alternative because the current version which they have been using and putting up with for so many years is no longer going to be supported. Or the other alternative given to my LinkedIn contact was to have the same company providing the software, outsource the whole salary packaging administration function – how convenient!
This doesn’t seem very fair does it? Clients who have been patient and loyal over many years supporting software that hasn’t met expectations, are now being forced to pay more or get out!
If the story above relates to you, there is now an alternative – MySalPack.
The MySalPack software is a web based solution to facilitate the processing and reporting of salary packaging in the Corporate, Rebatable, Public Hospital and Not-for-Profit employment sectors. The functional aspects of the MySalPack software is to support the business by automating the processing of data efficiently and accurately while meeting all regulatory and compliance requirements.
One of the significant strengths of MySalPack is the MyKiosk customer portal that delivers live data and information to employees about their salary packaging account on both their desktops and mobile devices.
This is achieved by understanding the specific requirements of the various organisations within each industry sector. MySalPack has the capability of supporting both the outsourced as well as the in-house solutions, integrating robust security, audit and importantly flexible reporting capabilities.
Key features:

  • Ability to calculate Meal Entertainment and show the share of saving and admin as a separate line item.
  • To incorporate direct data feeds through file transfer protocol from Payroll to take into account specified factors for calculating an employee’s package.
  • Uploaded files are produced in the correct format for loading into Payroll and includes an adjustment file for any changes.
  • Automation of banking details can be loaded from Payroll to reduce manual entry, reducing error rates and improving productivity and compliance.
  • Detailed evidence register that updates automatically when a package is entered or copied from a previous year.
  • Efficient reporting tools including payroll reconciliation after each pay.
  • Easier access to updating of tax rates, benefit items, cost centre and facility lists, pay periods and banking.
  • On-line calculators for General, Novated Leasing, GST worksheets plus many more features, that can be emailed, saved and printed.
  • Form letters can be produced based on criteria, including the bulk send out of renewal letters each year.
  • Novated Leasing functionality with the ability to interface to external systems if required.

The team behind MySalPack is a Australian company called SafeCode who can provide you with further information and demonstrate the software.

website safecode.com.au
phone 1300 20 82 77

Why Novated Leasing? – Not For Profit Organisations

Leigh Skelton is the Finance Manager of Ballarat and District Aboriginal Co-operative (BADAC),a Not For Profit Organisation delivering much needed health, social, welfare and community development programs to local Aboriginal people.

In their latest company newsletter, Leigh describes all the reasons why he loves his Novated Lease with Car Leasing Options.

Click here to read the excerpt.

If you are a Not For Profit Company and would like to know more about offering this service to your employees, contact us on 1300 69 30 77.

Federal Budget 2015 – Workers pushed into higher tax brackets

Hundreds of thousands of Australian workers will find themselves in higher tax brackets after [the] federal budget left tax brackets unchanged.

The failure to reset tax brackets will push the average full-time worker, earning $78,000 a year, into the second-highest tax bracket in 2015-16, with any earnings over $80,000 subject to a 37 per cent tax rate, 39 per cent including the Medicare levy. As a result, the average worker will be slugged an extra $1200 in tax a year, and the average income tax rate will rise from 21.7 per cent to 27.4 per cent over the next decade.

It’s not a pretty picture.

The picture is even less pretty for the thousands of individuals who will pushed into the top tax bracket, which kicks in at $180,000… “This makes the top marginal rate 49 per cent, giving a 10 per cent hike in the marginal tax rate, so beyond $180,000 the employee loses almost half of every extra dollar earned…” notes HLB Mann Judd Sydney taxation services partner Peter Bembrick.

For families at the lower end of the pay scale, increased earnings can also mean the unwelcome end of government benefits, such as family tax benefits.

“It is important that people know their effective tax rate and not just their marginal tax rate to determine if how hard they are working is worthwhile, especially those in the lower brackets,” says the managing director of  BFG Financial Services, Suzanne Haddan.

Prescott Securities senior economist and financial adviser Alan Hutchinson says there are a number of options for taxpayers who are in danger of jumping into a higher tax bracket.

Cutting back on the hours worked is one option, although possibly not the best if there are mortgages and school fees to pay, he says. Another strategy is salary sacrificing into superannuation.

“Salary sacrificing is the main strategy available to people wanting to avoid bracket creep, and it is the one that works,” says Hutchinson.

ipacSecurities head of technical services Colin Lewis says salary-packaging motor vehicles and laptops used for work-related purposes may be an option for some employees as a way of reducing assessable income.

Employees of public benevolent institutions such as public hospitals or not-for-profit organisations are still able to salary-package almost anything including living expenses, education costs, loan and mortgage repayments, rent, credit card payments and bills, he says.

AFR Contributor

*Source Bina Brown – Australian Financial Review

See the full report here.

RBA Maintains Run of Record Low Rates

True to economists’ expectations, the RBA has again left the cash rate untouched during September.

In his monthly statement, Governor Glenn Stevens sighted the decision to leave rates on hold was heavily influenced by the high Australian dollar and increasing unemployment.

“Monetary policy remains accommodative. Interest rates are very low and have continued to edge lower over recent months as competition to lend has increased. Investors continue to look for higher returns in response to low rates on safe instruments. Credit growth has picked up a little, including most recently to businesses. The increase in dwelling prices continues. The exchange rate, on the other hand, remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy,” Stevens said.

The RBA has repeatedly stressed the likelihood of “a period” of low and stable interest rates since it met February this year, noting
the tepid improvement in investment outside the resource sector, alongside significant increases in house prices and a growing pipeline of home building.

The cash rate has now stayed at 2.5 per cent for 13 months, the longest period of interest rate stability since 2006.

MyMortgagePlus opens its doors

MyMortgagePlus has begun operations this month and is an integral part of the LeasePLUS Groups plans to deliver value adding financial service products to its clients.

MyMortgagePlus offers a fee free service to undergo a health check on your current mortgage or look at lending possibilities for those looking to get into the property market.

We cover areas such as;

  • Pre-approvals for new home buyers/upsize/downsize
  • Investment lending
  • Bridging finance
  • Salary cap benefits – mortgage repayments can be included
  • First home buyers with little deposit

We can also look at debt reduction strategies to maximize the repayments you are making thus reducing the life of the loan and potentially saving thousands.

My Mortgage PLUS have access to 30+ lenders thus allowing competitive rates with fixed rates as low as 4.6%.

Additionally My Mortgage PLUS is able to order property profile report on just about any property – which can be very handy for those looking to gain an understanding of their local area and can even produce sale price history to provide you with an advantage when looking at property purchases.

With such a competitive market it is ideal to review your home loan every 3 years as an absolute minimum.

I would encourage all my contacts who have a home loan or considering the possibility of a new home or investment property to contact our consultants at www.mymortgageplus.com.au or to call 1300 73 77 88.

AUSTRALIAN MOTOR INDUSTRY SUMMARY – JULY 2014

Top ten makes

Toyota retains the top sales position in the July monthly market with 16,486 vehicle sales, ahead of Holden with 8,990 and Hyundai third with 8,048. Toyota, with a market share of 18.1%, holds market leadership in year to date terms. Holden’s July result sees it in second position with a market share of 10.1%, with Mazda’s market share of 9.2% placing it third. Hyundai, with a market share of 8.9%, is in fourth position. Ford is in fifth position with share of 7.5%, ahead of Nissan with 5.9% market share in year to date terms.

Report for the month of
Jul-14
Year to date
Jul-14
Year to date
Jul-13
Month
Jul-14
Standings Marque Volume Share Volume Share Volume Share
1 Toyota 117,591 18.10% 123,543 18.60% 16,486 18.30%
2 Holden 65,763 10.10% 61,684 9.30% 8,990 10.00%
3 Mazda 59,958 9.20% 60,812 9.20% 8,048 9.00%
4 Hyundai 57,948 8.90% 55,988 8.40% 8,351 9.30%
5 Ford 48,452 7.50% 51,237 7.70% 6,210 6.90%
6 Nissan 38,606 5.90% 49,139 7.40% 5,451 6.10%
7 Mitsubishi 37,718 5.80% 42,984 6.50% 5,042 5.60%
8 Volkswagen 32,562 5.00% 31,359 4.70% 3,991 4.40%
9 Subaru 23,161 3.60% 23,815 3.60% 3,121 3.50%
10 Honda 18,151 2.80% 26,175 3.90% 2,708 3.00%

Source: VFACTS Report July 2014

2014 Federal Budget

FRINGE BENEFITS TAX AND SALARY PACKAGING

FBT rate
The FBT rate is being increased from 47% to 49% to align with the highest marginal tax rate inclusive of the Temporary Budget Repair Levy of 2%. Whilst the increased income tax rate will apply from 1 July 2014, the increased FBT rate will not apply until 1 April 2015. Further, whilst the Temporary Budget Repair Levy applies until 30 June 2017, the FBT rate is to drop again as of 1 April 2017.

Changing the FBT rate also changes the FBT gross-up rates, as follows:

2014-15 FBT year 2015-16 FBT year 2016-17 FBT year 2017-18 FBT year
FBT rate 47% 49% 49% 47%
Type 1 gross-up 2.0802 2.1463 2.1463 2.0802
Type 2 gross-up 1.8868 1.9608 1.9608 1.8868

Salary packaging
The reason for increasing the FBT rate is stated to be “To prevent high income earners from utilising fringe benefits to avoid the levy”. But you would need to salary package a lot of income to take advantage of this 2% differential. For instance, packaging $20,000 would only produce a saving of around $400.

So whilst there appears to be an opportunity in both the year ending 30 June 2015 and the year ending 30 June 2017, for high income earners to take fringe benefits in the period where the lower FBT rate applies, it would only be useful to the extent the employee earns above $180,000 and the minimal savings probably mean they are unlikely to bother.

Not-for-profit caps
In order to protect the value of fringe benefits provided in the not-for-profit sector, that otherwise diminishes with an FBT rate increase, the annual caps for concessional treatment are to be increased. Confirmation of the new amounts has not yet been provided.

FBT rebate
The FBT rebate (currently 48%) is to be aligned with the FBT rate as of 1 April 2015.

Leight Penberthy
Chief Executive Office

*Source Elizabeth Lucas – Grant Thornton Australia

Media release – Innovation patent supplied to SalaryPackagingPLUS for its MySalPack software

We are proud to announce the grant of our innovation patent 2014100041 by the Australian Patent Office on 20 February 2014. This patent covers our SalaryPackagingPlusTM product, and is testament to the creativity of the team involved.

I especially thank Linden Footman and Abhi Mishra who worked tirelessly to overcome the many hurdles that are inevitably faced in creating a product such as this. Their problem solving skills were key in achieving a quality product.

I thank also Ronnel Magdaluyo who was employed by us to write a proportion of the code under the direction of myself, Linden and Abhi.