Car Dealers Brace for $2 Billion Efficiency Costs

Australia's car dealerships are facing significant financial pressure as new federal fuel efficiency standards come into effect. These changes are aimed at reducing emissions but could cut dealer profits by as much as $2 billion over five years. The New Vehicle Efficiency Standard (NVES), which starts on July 1, penalises automakers that exceed emissions targets. Some of these costs are expected to trickle down to dealerships already operating with tight margins.

There are currently 3800 dealerships across the country trying to adapt to broad industry changes. The NVES is part of the federal government’s broader push for cleaner transport. It assesses emissions across automakers' lineups of new models. Brands that sell high-emission vehicles will face stricter penalties. The goal is to push manufacturers toward cleaner technologies such as electric and low-emission models. However, the impacts are felt across the supply chain, including at the retail level.

According to modelling by the Centre for International Economics, profit from new vehicle sales could decline by between $1.1 billion and $2.1 billion over the period from 2025 to 2029. Dealerships that rely on high-volume sales of larger diesel-powered utes and 4WDs are particularly exposed. While some manufacturers may absorb a portion of the penalties, changes in pricing and consumer demand are likely to affect dealer margins.

Used cars are gaining popularity as a result. With new car prices expected to increase due to the emissions rules, more consumers are likely to shift toward second-hand options, especially amid rising living costs. This trend may cushion the impact on dealerships to some extent but will not fully make up for the expected revenue losses.

Hybrids are becoming a focus in the transition. At present, hybrids make up 30% of all new car sales, far ahead of electric vehicles at 6.3%. Despite this, current policies are set to remove hybrid credits by mid-2026. Automakers that depend on hybrid sales could face escalating penalties if they fail to increase their electric vehicle ranges in time.

Key global brands from Korea, Japan and China are developing strategies to adapt. Some believe their current vehicle lineups will help avoid penalties in the short term. However, as rules become stricter and hybrid credits are eliminated, continued compliance will become more difficult.

Overall, the federal government appears to be steering the market rapidly toward full electrification. Still, industry stakeholders warn that without increased investment in infrastructure like EV charging stations, manufacturers and dealers could be left to absorb the financial burden alone.

Source: Australian Financial Review, Department of Infrastructure, Transport, Regional Development, Communications and the Arts, Climate Council of Australia, Electric Vehicle Council