GOVERNMENT regulators and advisors, Canberra bureaucrats and New Zealand-based business people who are aiming to get their hands on what they see as a lucrative sector of the Australian car market by using the Trojan horse of parallel imports, are in for a shock.

According to research using a common measure of purchasing power in various countries, the argument that new cars in New Zealand are cheaper than in Australia – which is the key plank in the push for parallel imports – is just plain wrong.

Parallel imports, it turns out, is a solution in search of a problem.

Research by GoAutoNews Premium, using the international currency parity tool of Big Mac hamburger prices across different countries, shows that cars on sale in Australia are far and away more affordable than in New Zealand and, those that are more expensive, have a higher price due to the imposition of the luxury car tax (LCT) by Canberra.

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Devised by authoritative international business magazine, The Economist, and known as the Big Mac Index, the price of a Big Mac is used to show the true value of international exchange rates.

The reason a Big Mac is used is because it is a product with a cost base that derives from the McDonald’s business model that is consistent throughout the world. The price of a Big Mac reflects a wide variety of common business cost inputs in different countries and is indicative of the purchasing power of each country’s car buyers.

Using the Big Mac eliminates price disparities that occur when trying to measure car prices in various countries based on exchange rates that can fluctuate wildly. Big Mac prices are stable.

For the purpose of this exercise, GoAutoNews Premium selected cars sold in Australia and New Zealand and many equivalent cars sold in the United Kingdom and Japan; two countries that Canberra thinks cars will be cheaper than in Australia.

We asked: How many Big Macs at its local market price would you need to buy that car at its price in the market?

The results were a surprise. Australian car prices based on their Big Mac (BM) Values were, in some cases, very similar to BM Values in New Zealand. However, in nearly all examples but two, the BM Values in Australia were significantly less than in New Zealand.

What was equally surprising was how much more car buyers in the UK and Japan have to pay for their cars on the basis of their BM Value. In some cases, Australian cars were nearly half the BM Value of the same cars in the UK and Japan.

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The cars were selected at random, with a few exceptions, but we chose cars that were sold in similar standard form in all four countries.

Looking at a cross-section of cars, we found that a Volvo V40 T5, for example, had a BM Value of 9600 in Australia compared with 11,000 in NZ, 12,400 in Japan and 10,400 in the UK.

A Mazda6 Sport in Australia had a BM Value of 6100 compared with 7300 in NZ. In Japan it was a whopping 11,400 and in the UK it was 8500.

The BM Value for a Subaru XV 2.0i was 4900 in Australia, 6600 in NZ, 6100 in Japan and 8100 in the UK.

So let’s try a German import. An Audi A3 Sportback had a BM Value 6800 in Australia and 8300 in NZ while in Japan its BM Value was 8100 and it was 9200 in the UK.

The Mini Cooper in NZ had a lower BM Value than in Australia but at 6700 in NZ compared with 6900 in Australia, the difference was marginal. However, Japanese and British Mini Cooper buyers face a much higher BM Value of 8900 in each country.

The Hyundai Santa Fe AWD Diesel Elite was 9400 in Australia, but was north of 12,000 in both NZ and the UK.

The Toyota Corolla Hatch has an edge in Australia over NZ with a BM Value of 3700 compared with 4400 in NZ. In the UK it was 7100 and in Japan the Corolla was at 5100.

The sobering feature of this research is that federal MPs who continue to back the luxury car tax are the ones most responsible for any Australian car prices that are greater than the equivalent car in NZ because, with rare exceptions, where the Australian equivalent is more expensive the LCT is responsible.

At the very top end, the Australian Lamborghini Aventador LP700-4 coupe is in a serious deficit compared with NZ (143,679 BM Value for Australia and 114,407 for NZ), but the Australian price contains $161,000 in LCT. When that is removed from the equation, the the BM Values are pretty much line ball in each country with a 113,200 BM Value in Australia and a 114,400 BM Value in NZ.

Similarly, a local Porsche 911S has a BM Value of 46,189, a figure which drops marginally lower than the NZ BM Value when the LCT is deducted, 38,281 compared with 38,729.

By John Mellor and research by Neil Dowling

What’s a hamburger price got to do with it?

The Australian dollar is the fifth most traded currency in the world and accounts for eight per cent of currency trades.

It is favoured by traders because its moods and swings generate frequent arbitrage opportunities and therefore it is more a measure of international currency market speculation than it is a measure of the value of Australian goods compared with those of other countries.

How can you get a handle on relative values using the Aussie dollar when it has changed in price against the US dollar by between 25 per cent to 30 per cent on the past year?

So in this sense it is unreliable.

The Economist chose the McDonald’s Big Mac as a measure of whether a currency was overvalued or undervalued because all the ingredients has a cost base that is consistent throughout the world.

The Big Mac is a measure of the cost of meat, vegetables, dairy and bread because McDonald’s uses exactly the same ingredients in a Big Mac worldwide.

The price reflects the cost of doing business in that country. It covers the cost of consistent hiring and training practices of servers, cooking staff and managers, as well as advertising and packaging expenses. It accounts for utilities, regulatory and government costs and taxes as well. It also reflects common property overheads which use common building designs and fittings in premises which are rented or owned in the same desired locations.

The Economist uses the index to measure whether currencies are overvalued or undervalued. However GoAutoNews Premium has used the price of a Big Mac in each country as a measure of the ability of people in four different markets to pay for the same car.

To do this we simply calculated the number of Big Macs you would need to buy each car – the price of the car divided by the price of a Big Mac in that market.

We hit on this different use of the Big Mac Index some years ago when we were recruiting an American motor industry journalist based in London to bring him to work for us in Australia.

In order for him to understand the strength of our remuneration offer he needed to know the value of the salary in Australian dollars and whether it would cover his living expenses in this country.

We sent him details on how many Big Macs his salary would buy, how many Big Macs his apartment rent would be, number of Big Macs to buy a basket of groceries, Big Macs to buy a car on sale in the UK and the US as well as here and the same for a number of other staples. He then did the same for the UK and the US. In the end he had to return to the US for family reasons but it was a very successful way of making the value of our offer clear to him.

Note: The local prices of Big Macs in the UK, Japan, Australia and New Zealand were sourced from The Economist which published them in January this year.