Fact or fiction: Are tax incentives fueling the ute market?

It is a scene you see every Friday night at the local pub – a group of tradies discussing the tax savings from buying their latest Ute. Or perhaps the discussion is around the latest aggressive looking Black Ram DT Luxury 1500 which fits all the family, bikes, luggage, and dog(s) for the six-month camping holiday.

So, are tax incentives such as the “temporary full expensing” (no threshold from 6 October 2020) and prior to that the “instant asset write-off” ($30,000 threshold from 2 April 2019; the $150,000 from 12 March 2020) fuelling the Ute market growth? We sought input from the senior executives at Ateco Automotive Group (who import and distribute Ram Trucks, LDV and Renault) to bring perspective to the discussion being played out in the media.

Dinesh Chinnappa (General Manager of LDV) considers that there are many reasons behind the growth in the “Ute” segment. These include that the Ute is now a mainstream vehicle and an alternative to the large SUV – it is no longer just a work car. Customers are seeing affordable Utes (such as the LDV T60) with the same luxury features as top of the range SUVs, particularly with regards to performance, safety, technology, and comfort.

The impact of COVID-19 is also acknowledged by Ateco. Utes are key to the “grey nomad” market given towing, storage, and off-road capabilities. Easy access to cheap finance (banks offering attractive small business finance packages) and high levels of consumer confidence and spending are a positive impact on the Ute (and automotive in general) market.

The explosion in online shopping and the need for couriers is also fuelling the Ute and small van market. Renault is seeing strong demand for the Trafic and Master vans. The flow on effect of Ute and van sales is clear to see in the aftermarket accessories market with record sales and profits for the likes of the ARB group.

In my view, the growth in Ute and aftermarket accessory market is creating thousands of jobs. Local manufacturers of products like tow bars, bull bars, exhausts and canopies have never been as busy. Consumers are not prepared to wait for imported product. In a very tangible way, the range of Government incentives and spending is working to create jobs.

Jeff Barber (National Manager, Ram Trucks Australia) pointed out that the pickup cab chassis (4x4) segment has been growing steadily since 2016 when it represented 12% of all vehicles sold. In 2020, that number has increased to 17%. Growth, yes, but not what you say is astronomical tax incentive fuelled growth. In a very short time, Ram Trucks has become the iconic “head turning” large Ute in the Australian market.

“If anything, Federal and State Government spending on infrastructure and housing-based incentives are having a major impact on the Ute market.” suggests Roger Zagorski (MD of the Ateco Group). “Ateco was seeing an upsurge in demand well before the 2 April 2019, instant asset write-off was announced – but the initial increase to a $30,000 write off helped our LDV Ute market.” Roger said.

Roger said “the feedback from the Dealer network was that any tax-based incentive is a difficult one to explain to customers.”…“No Dealer wants to be a tax adviser, it’s a simple as that. Even our lawyers are paranoid about how we portray any tax benefit in our advertising”.

Both Dinesh and Jeff are seeing an emerging trend of home renovators trading the sedan for a Ute. Shows like “The Block” have a big impact for the DIY builder. There is nothing better than having a Ute to be involved in the building project and perhaps, parking in loading zones. “You would look out of place at Bunnings in a sedan these days” says Dinesh.

So, there are many factors fuelling the growth in the Ute market. The biggest factor is that Utes are a popular vehicle. The instant asset write-off /temporary full expensing stimulus has helped but other Government spending, consumer liquidity and economic optimism have and will continue to play a substantial role.