Fears emissions law ‘loophole’ will leave dealers with cars they can’t sell as makers scramble to hit targets

A “loophole” in the Federal Government’s upcoming emissions law could mean car dealers are left with the burden of flogging high-polluting vehicles no-one wants, with many “fearful” for the future.

The New Vehicle Efficiency Standard (NVES), which forces car makers to cut their emissions each year for the vehicles they sell – or else face heavy fines – is due to come into effect from 1 January 2025, with a six-month grace period given until penalties are imposed from 1 July.

However, as first reported by the ABC last month, because cars imported to Australia are registered at port rather than at the point of sale as they are in many other markets, car manufacturers will be able to import their highest-polluting cars in the first six months of the NVES and then sell them over the following 12 to 18 months without them counting against their emissions totals.

Furthermore, because these cars won’t count, the car makers will be able to generate more credits to use over the following two years to again more easily meet their climate obligations.

While none of this looks good for the integrity of the scheme, the knock-on effect is something dealers are seriously worried about. 

“We’re keeping an eye on how the market changes, particularly the legacy OEMs (original equipment manufacturer) that have the really big dealer networks, to make sure dealers don’t get caught in the middle of it,” CEO of the Motor Trades Association of Australia (MTAA) told Drive.

“They don’t start counting until the middle of next year, so all that means is you’re incentivised – if you can get supply – to bring all your bad actors in early on, fill up the pipeline and then hang on and make the changes over time if you’re able to get new technologies and new products.

“But the on-going risk is the point of compliance being at the port, not at the point of sale. Once the stock leaves the port and goes to the dealer they’ve got to look after it from that point until it’s sold…and they [the OEM] gets their compliance tick…but someone’s got to pay for that.”

The NVES is due to be reviewed after two years, but until then, Mr Hobbs says dealers will be under pressure to take cars they might not be able to sell.

“An OEM would say, ‘oh, we don’t make them take them’, but if you [a dealer] get a phone call from your zone manager and he says, ‘mate, I need you to take a hundred of these or 50 or 20 and you’ve already got a bunch of them’ there’s not much you can do – there is pressure, it just exists. Whether it’s deliberate or not, everybody’s got to hit targets,” he told us.

“The danger is that you get some brands that force this onto the dealer and then, if the market turns on them, they get stuck with cars and they have to finance them. 

“Dealers can take the haircut on it, which will definitely be what happens I think, but they could also negotiate as a group with the OEM to say, ‘this is a dog, right? You need to take a haircut too’. But then it becomes a situation of no-one’s making money and that’s okay for the consumer, quite good in fact – a better price cut, but it’s not sustainable for the industry.”

According to the MTAA, in discussions with the Federal Government, officials were understanding of the potential problems, but because the Commonwealth doesn’t control registrations – the states and territories do – they haven’t yet been able to figure out how to close the loophole.

The Australian Automotive Dealers Association said it was also concerned about how the gaps in the fine print would play out for its members.

“We are incredibly concerned that allowing OEMs to comply with the NVES at the point of import will put dealers at particular risk,” said CEO James Voortman.

“In an attempt to comply with the law, OEMs could load their dealers with certain stock that might not necessarily sell. That would leave dealers paying significant floorplan interest costs.

“For the benefit of dealers, but also the integrity of the NVES, it essential that compliance is at the point of sale.”

A spokesperson for the Department of Infrastructure, Transport, Regional Development, Communications and the Arts denied the issue was a loophole and said grace periods with new legislation are commonplace.

“This is not a loophole. To ensure we get the implementation right, the New Vehicle Efficiency Standard will start on 1 January 2025, but manufacturers will not begin earning credits or penalties until 1 July 2025,” a spokesperson said.

“It is typical for legislative frameworks to have a grace period before full compliance is expected.

“The Standard was designed in consultation with the car manufacturers and dealership representatives, with the staged implementation being critical to enable preparation and testing of essential data reporting capabilities.”

Other secondary effects of the NVES are expected to be felt in the used-car market in the coming years.

Industry experts claim the NVES will quash the new-car market by as much as 19 per cent, significantly increasing demand – and potentially prices – for used cars as buyers look to side-step the new regulations.

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