More caravan price hikes coming

If you’re planning to get away inland instead of heading overseas this year in a new caravan or camper trailer, start budgeting for a significant hike in its price.

But before you start accusing the industry of price gouging in these COVID times, there’s a fair chance the extra money you may be asked to pay still won’t cover their costs.

Component shortages and hence longer delivery times of up to two years have left the industry cash-strapped while still having to meet ongoing standing costs like property and equipment leases, land taxes, wages, payroll tax and so on, just to keep their doors open. In fact, more local manufacturers say they are still losing money on each sale compared to pre-COVID times.

Unfair playing field

Gerard Waldron, the boss of Melbourne-based Tvan manufacturer Track, has outlined some of these challenges in a recent open letter to Australia’s Federal Treasurer, Josh Frydenberg, in which he says the state and federal based costs of doing business damages local manufacturing and creates an unfair playing field biased towards imported caravans and camper trailers.

“COVID has given us insights into the fundamentals of internationally competitive manufacturing and as they say, ‘you should never waste a crisis’,” he wrote.

Like many businesses Track was enormously grateful for Job Keeper and the State Government’s reimbursement of Payroll Tax of more than $1000 per unit manufactured.

“This helped us through nearly three months of nil production in 2020,” he said.

Track’s second insight came as it was renegotiating its factory lease, when the landlord pointed to the significant increases in land tax and similar charges over the previous five years which would have to be recovered going forward.

“So our rent has increased by around $400 per unit manufactured based on the  production levels we hoped to exceed in 2021. But in common with many other manufacturers, we have supply chain constraints, despite a full forward order book, so the net outcome will likely be incrementally lower State Government charges/unit, as we incrementally increase production.”

Waldron said as around 90 per cent of Australian RV production was in Victoria, state taxes, regulations and lockdowns impacted most Australian-made products.

He said the RV market until 2015 was roughly 40 per cent Jayco; 40 per cent all other Australian manufacturers; and 20 per cent imports including EU, UK, USA and China.

“However in 2015 when Australia signed a free trade agreement with China, the market was split into thirds, with equal shares from Jayco, all other Australian manufacturers and China. Now, while the volumes in the two-thirds Australian share are unaltered, Chinese imports have grown to more than 10,000 units per year, so all the growth in the sector had been taken up by imported products.”

Although the Victorian manufacturing lockdowns came to an end in October 2020, Chinese manufacturers had already been out of lockdown for some months and in the last quarter of 2020 their Australian RV market share rose to more than 40 per cent.

Australian manufacturers also returned to work with depleted supply chains, parts shortages and increased lead times, especially on the many Chinese made parts that go into most locally built RVs.

“So even with buoyant sales, ramping-up production in response has been a difficult opportunity,” he said.

Steve Punton, the director of Queensland's Rhinomax Campers agreed.

“It would be fabulous if we could just turn on the supply tap, but we just can’t get the skilled workforce to meet the demand,” he said. “We also won’t let any RV leave incomplete, and we won’t lower our quality standards, so delivery times have been pushed well out for some models."

Better deal for importers

While the lower production costs of Chinese manufacturing creates a competitive advantage for off-shore manufacturers, it's probably less obvious that Australian taxation further enhances the competitiveness of imports, relative to Australian manufactured RVs.

“Compared with local manufacturers, importers generally have a much smaller local footprint and so attract much lower payroll tax and land tax per unit. Indeed, for many, these charges could be nearer zero," Punton said.

“This is a perverse outcome when COVID so recently demonstrated that retaining and reinvigorating Australian manufacturing was critical to our economy and security.

“In some cases this is compounded by business structures, where an importer might be an Australian Pty Ltd company, which is wholly owned by the overseas manufacturer. Clearly in addition to its other advantages, it can decide the import (transfer) pricing and ensure any income tax paid is ‘modest’, in the time-honored traditions of larger multinationals.”

Waldron said the only tax area where local and imports were on an equal footing, was GST.

“Local manufacturers would be far more competitive with imports if we raised GST and deleted the abovementioned state taxes. Simple and as difficult as that!” he said.