January 1st could be bringing more than a champagne induced headache for car companies operating under the current Free Trade Agreement. An importation tariff cut of 5% is being introduced in the New Year. This will further flatten the playing field for those companies that import their entire car line outside of the Free Trade area such as Mazda and Porsche.
The tariff reduction is from 10% to 5%, giving importers one of two options, pass on the savings to consumers or increase their profit margins. Whatever the choice, it will harm the competitiveness of those who already fall under the Asian Free Trade Agreement. Santo Ammodio Managing Director of Glass’s Guide (independent valuer) put it best, “Importers under the Free Trade Agreement just got 5% of their trade advantage whittled away’.”
Mazda has thrown their hat in the ring first by passing on the savings to consumers before the tariff cut even comes into effect, hoping to gain a significant market advantage coming into 2010. This could be an effective power move considering Hyundai and other importers may not even pass on the savings.
Hyundai spokesman Ben Hershman stated “We understand the tariff affects us as an importer and we don’t necessarily feel bound to pass the reduction through as a price reduction” Also Honda just effectively lost 5% of their competitive edge for Jazz, Accord and Civic. All these models are imported from Thailand under the FTA giving Honda a 10% advantage on those companies outside the FTA area.
However with this 5% reduction in tariff means Mazda can impress its customers with a price cut without losing any profit, whereas Honda would have to reduce already slim profit margins to match this pricing strategy. Considering these factors it seems Mazda could gain quite a head start in the New Year, with softer competition from Honda and Hyundai, two of its main competitors.
The new Mazda range has received good feedback so far, being nominated for the drive car of the year award and sales volume are also looking strong. These indicators suggest that Mazda’s aggressive pricing strategy could pay large dividends, possibly challenging Hyundai in 2010 as an industry breakaway. So the question is will Mazda be rewarded or reprimanded for being early to the party this New Year?