Petrol retailers should not use the current pandemic to further increase profits, which the latest ACCC petrol industry report shows have risen in recent years, and should pass on the full benefit of falling oil prices to motorists, the ACCC has said.

Weekly average international crude oil prices have decreased by around US$ 50 per barrel since the beginning of the year and this has largely flowed through to Australian wholesale petrol prices, which have decreased by around 50 cents per litre (cpl) in the same period.

Over the same period, seven-day rolling average petrol prices across the five largest cities (i.e. Sydney, Melbourne, Brisbane, Adelaide and Perth) have decreased by around 45 cpl. These cities have regular petrol price cycles, which makes it difficult to assess the exact flow through of falls in international crude oil and refined petrol prices in the short term.

“The drop in the crude oil price is good news for the Australian motorists. At this time the Australian economy needs all the assistance it can get, and lower world crude oil prices are one of the few positives from current world events,” ACCC Chair Rod Sims said.

“In the larger Australian capital cities, petrol retailers took too long to pass on the savings from the rapid drop in international oil prices, and this did not reflect well on them.”

In Hobart, Canberra and Darwin as well as many regional locations, retail prices have been much slower to come down and the extent of the falls has varied widely.

Fuel prices are generally higher in regional Australia due to a number of factors, including lower population and demand, meaning there are fewer petrol stations, which often leads to less competition. There are also higher costs for transport and storage of fuel, and less convenience sales which can support the operation costs of petrol retailers when fuel prices are low.

Price changes in regional centres can lag up to six weeks behind changes in the larger capital cities, because the turnover of stock is generally lower in the country. The reduction in demand for petrol due to current travel restrictions may have further exacerbated the lag.

“We have previously found that the lack of vigorous and effective competition in some regional locations was a major reason for higher prices in those locations,” Mr Sims said.

“Where there is competition, you tend to see lower prices. Giving your business to outlets that are pricing competitively sends a strong message to those that have high prices that they will lose your business. We recommend motorists compare prices on fuel price apps and websites, such as MotorMouth and the government schemes in NSW, WA and the NT, which also provide information on retail prices in regional locations.”

“Especially at this difficult time, retailers must not take advantage of the situation to increase their profits, but should pass on savings to motorists,” Mr Sims said.

“The ACCC’s role is to monitor the market closely, and we will continue to do this, particularly to keep the pressure on the petrol retailers at this time.”

New ACCC report shows retail profits increased over time

The latest ACCC petrol industry report reports on the revenues, costs and profits in the Australian petroleum industry up to June 2018. It includes financial results for the retail and wholesale sectors as well as for refining and across the total downstream industry.

Retail sector net profits across all fuel products, convenience store and non-fuel services were $616 million in 2017-18, the last year covered by this report.

The sector generated a record high $333 million in net profits on petrol products – regular unleaded petrol (RULP), premium unleaded petrol (PULP) and ethanol blended petrol (EBP). This equates to a record net profit of 3.0 cpl on petrol products, which was almost double the average in the period 2008-09 to 2013-14 of 1.6 cpl.

About 60 per cent of petrol net profits ($199 million) were made on premium fuels, which only accounted for about a third of petrol sales by volume.

“Much of the increase in net profits on petrol products was driven by sales of PULP, which has a significantly higher profit margin for retailers,” Mr Sims said.

Net profits on PULP 95 and PULP 98 were 5.8 cpl and 5.9 cpl respectively, while net profits on regular unleaded were 1.5 cpl in 2017-18.

PULP 95 and PULP 98 have become more expensive relative to the retail price of RULP. The annual average price differential between RULP and PULP 98, for instance, increased to 20.4 cpl in 2017-18, an increase of 3.9 cpl since 2009-10. Profits were also influenced by higher sales volumes of PULP (particularly PULP 98).

Retailers also earn substantial profits from convenience store sales. Convenience and other non-fuel sales contributed around 37 per cent of total retail sector net profits (or $226 million) in 2017-18, illustrating their importance to petrol retailers’ businesses as the profit margins on these products are significant.

“Petrol stations make most of their profits from convenience sales and premium fuel. The average net profits on regular unleaded, at about 1.5 cpl are only a small part of the price motorists pay,” Mr Sims said.

The annual average retail price of RULP in the five largest cities in 2017-18 was 134.5 cpl.

“Drivers who have the option, can save money by resisting the temptation of convenience foods at petrol stations and using regular unleaded petrol, although motorists should follow their car manufacturers’ advice,” Mr Sims said.

Net profits in 2017-18 were stronger for refining and across the total downstream industry

The number of refineries halved from eight in 2002-03 to four in 2017-18, significantly rationalising operations. The financial performance of the refining sector fluctuated over the same period.

Refining net profits however recovered following several years of net losses after the Global Financial Crisis. Net profits reached $845 million in 2017-18, the highest since 2007-08. Overall profits for the total supply sector (which comprises refining, importing and transactions between refiners) were $1.19 billion in 2017-18.

Wholesale sector net profits were about $976 million in 2017-18 across all products and services. They have fluctuated over time but have been relatively consistent since 2008-09.

Net profits for the total downstream industry across all products and services were $2.78 billion (or 2.9 cpl), the highest recorded since 2007-08 and more than double the figure recorded for 2013-14 ($1.24 billion, or 1.4 cpl).

For petrol products, total industry net profits were $1.44 billion in 2017-18, or 4.2 cpl, the highest recorded by the ACCC. They were around double the profits on petrol products across the industry in 2013-14 ($723 million, or 2.0 cpl).

Notes to editors

On 16 December 2019, the Treasurer issued a new direction to the ACCC to monitor the prices, costs and profits relating to the supply of petroleum products in the petroleum industry in Australia. As part of this direction, the ACCC produces industry reports that focus on particular aspects of consumer interest in the fuel market in relation to prices, costs and profits.

This is the first industry report under the new direction. It reports on the revenues, costs and profits for the total downstream petroleum industry as well as for the following industry sectors: retail, wholesale, and total supply (which comprises refining, importing and transactions between refiners).

The focus of this report is to provide transparency around the financial performance and the profitability of the downstream petroleum industry. It presents results from analysis of this data.

The ACCC analysed the financial data of 11 companies:

• refiner–wholesalers – BP, Caltex, Mobil and Viva Energy
• independent wholesalers – Liberty, Puma Energy and United
• supermarket chains – Coles Express and Woolworths
• large independent retailers – 7-Eleven and On The Run.

The ACCC previously reported on financial results to the end of 2013-14.

This report includes data from 2002-03 to 2017-18 (the latest data analysed), but excludes results for 2014-15 and 2015-16, which was a period when the ACCC conducted other financial analysis of the industry as part of its regional market study reports.

All results in this report are in real terms in 2017-18 dollars.

The ACCC has granted interim authorisation allowing retailers to collectively bargain with landlords about rent relief during the COVID-19 pandemic.

The interim authorisation, granted to the Australian Retailers Association and its current and future members, will also allow retailers to share information relevant to the negotiations including in relation to requests by landlords for certain information as part of considering and negotiating support to be provided in the context of COVID-19.

“We see a clear public benefit in allowing retailers to work together in the negotiations with landlords as it will help those tenants who are experiencing financial hardship during this pandemic to reach a fair outcome,” ACCC Chair Rod Sims said.

“We need to maintain strong competition in the retail sector and supporting these businesses will help with economic recovery once the pandemic subsides.”

The authorisation is voluntary and temporary, and does not include individual tenants exchanging information about the amount of their rent or any rent incentives they were previously granted. 

It is planned that the proposed co-operation will have regard to the proposed mandatory Code of Conduct which sets out the good faith leasing principles applicable between landlords and small and medium shopping centre tenants.

“As with all of the temporary arrangements that industries are looking to implement as a means to deal with the COVID-19 issues they are facing, we will keep under consideration when they are no longer necessary,” Mr Sims said.

Having granted interim authorisation for the arrangements, the ACCC will now seek feedback on the application for final authorisation which is sought for a period of 12 months from the date of authorisation.

More information, including the ACCC’s interim authorisation decision, is available at Australian Retailers Association.

Background

The Australian Retailers Association is Australia’s largest retail industry association and provides advice, education and advocacy for its approximately 7,500 members.

On 3 April 2020 the ACCC granted interim authorisation allowing shopping centres to co-operate to support retail tenants financially impacted by COVID-19.

Notes to editors

ACCC authorisation provides statutory protection from court action for conduct that might otherwise raise concerns under the competition provisions of the Competition and Consumer Act 2010.

Section 91 of the Act allows the ACCC to grant interim authorisation when it considers it is appropriate. This allows the parties to engage in the proposed conduct while the ACCC is considering the merits of the substantive application.

The ACCC may review a decision on interim authorisation at any time, including in response to feedback raised following interim authorisation.

Broadly, the ACCC may grant a final authorisation when it is satisfied that the likely public benefit from the conduct outweighs any likely public detriment.

Maintaining profits was a major consideration for the big four banks as they weighed whether to reduce mortgage rates in line with Reserve Bank of Australia cash rate cuts during 2019, the ACCC has found.

The ACCC’s Home Loan Price Inquiry interim report, released today, shows that the big four banks considered various factors as they decided whether to pass on the RBA’s June, July and October 2019 rate cuts. But recovering profits was central to their decisions to not always fully pass through the lower rates to mortgage customers.

“The banks were attempting to shore up their profitability during a period of low interest rates,” ACCC Chair Rod Sims said.

“It was their strong preference, after the RBA’s cuts, not to further reduce the rates customers were earning on some deposit products as they approached zero per cent.”

“The banks’ reluctance to cut these deposit rates led them to anticipate lower profits, which they aimed to recover by not always fully passing through cash rate cuts to their mortgage customers,” Mr Sims said.

The ACCC’s analysis also found that the big four banks benefitted from a sustained decrease in their funding costs during much of 2019. While headline rates for owner-occupier home loans with principal and interest repayments fell overall during 2018 and 2019, the banks’ funding costs fell even more over the same period.

“We recognise that much has changed in the economic and funding environment since last year. The COVID-19 pandemic has shifted priorities and the banks are playing an important role in supporting the economy,” Mr Sims said.

“However, the inquiry findings shed an important light on bank decision making and raise questions about whether the banks could, at the time, have passed on a higher proportion of those RBA cash rate cuts to their mortgage customers.”

The ACCC’s Home Loan Price Inquiry interim report also shows that although average interest rates charged by the big four banks on home loans fell during 2019, a lack of price transparency and higher interest rates for existing loans continued to cost customers.

The interim report examines home loan prices charged by the big four banks between 1 January 2019 and 31 October 2019. It found that home loan pricing practices continue to make it difficult for consumers to compare different mortgage products.

Headline rates did not accurately reflect the price most big four bank customers actually paid for their home loans, because the overwhelming majority of customers received discounts, including opaque discretionary discounts.

“Given the economic disruption, uncertainty and job losses stemming from the COVID-19 pandemic, many consumers may not be inclined to shop around and ask for discounts from their banks right now,” Mr Sims said.

“However, our analysis shows how that even a small further reduction in interest rates could potentially save thousands of dollars over the life of a mortgage. Consumers should consider this carefully when it is time to re-engage with their lender.”

For example, a customer with an average-sized new, owner-occupier, principal and interest mortgage of $386,000 could save about $5000 on interest payments in the first year if they went from having no discount to receiving the big four banks’ average discount of 128 basis points.

At the end of September, customers with new owner-occupier loans with principal and interest repayments were paying, on average, 26 basis points less than customers with existing loans. The difference was usually even more significant for customers with older loans.

The ACCC’s final report, scheduled for release later this year, will consider barriers to consumers switching to alternative home loan suppliers.

Further information at Home loan price inquiry

Background

On 14 October 2019, the Treasurer, the Hon. Josh Frydenberg MP, issued a direction to the ACCC to conduct an inquiry into the market for the supply of home loans. The specific matters the ACCC was directed to take into account included:

• prices charged for home loans since 1 January 2019, including:
  • the difference between advertised interest rates and interest rates paid by customers
  • the difference between interest rates paid by new and existing customers
  • home loan suppliers’ pricing decisions following changes in the RBA’s target for the cash rate, including the extent to which changes were due to suppliers’ cost of funds and the timing of the suppliers’ announcements
• impediments to consumers refinancing to alternative home loan suppliers.

The interim report focuses on the first issue regarding the prices charged for home loans between 1 January 2019 and 31 October 2019 by the big four banks, which account for close to 80 per cent (by value) of home loans held by authorised deposit-taking institutions in Australia. The final report will consider the second issue, impediments to consumer switching.

The big four banks are Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank, and Westpac Banking Corporation.

In preparing the interim report, the ACCC used its compulsory information gathering powers to obtain information and documents from the big four banks, and supplemented its analysis with data supplied by the RBA and the Australian Prudential Regulation Authority. 

The findings in the report reinforce and build on those in the ACCC’s earlier Residential Mortgage Price Inquiry.

Nearly 200,000 vehicles fitted with potentially deadly airbags are still on the roads, and more than 8,000 of these are considered so dangerous they should not be driven at all, according to the latest ACCC figures on the compulsory recall of Takata airbags.

In addition, a significant number of vehicles fitted with a different type of faulty Takata airbag are yet to be remedied. These vehicles, which are fitted with Takata NADI airbags, are considered so dangerous that manufacturers are offering to buy back the vehicles or to provide a loan vehicle until replacement parts are available. We are aware that there have been two deaths and two injuries in Australia resulting from misdeployments of Takata NADI airbags. 

Motorists are being urged to check now if their vehicles are fitted with these recalled Takata airbags, as car dealerships are still operating and providing replacement airbags free of charge. 

“Even during this pandemic, replacing faulty airbags is an essential and potentially life-saving task, especially as vehicles may be being used by essential workers and care-givers,” ACCC Deputy Chair Delia Rickard said.

“It will also be more important than ever that as more people start to use their cars again, they check that their airbags are safe. Affected Takata airbags can misdeploy and send sharp metal fragments into the vehicle at high speed, and cause serious injury or death to its occupants.”

“Drivers should check online or with their dealer or manufacturer whether their vehicles are subject to this compulsory recall or the voluntary recall of Takata NADI airbags, and never ignore a notice of recall from your car’s manufacturer,” Ms Rickard said.

Globally there have been 29 deaths and over 320 serious injuries reported, including one death and one serious injury in Australia relating to airbags affected by the compulsory recall.

Over four million airbags in more than three million vehicles in Australia were originally affected by the Takata compulsory recall due to these potentially deadly airbags.

More than 88 per cent of airbags have now been rectified, and about six per cent have been reported by suppliers as written-off, stolen, unregistered, exported or modified and unable to be replaced.

Figures from the ACCC’s latest quarterly update on the compulsory recall show that about five per cent (over 228,000) of faulty airbags remain in more than 196,000 vehicles.

In particular, motorists are in danger if they have a critical vehicle containing an airbag that poses a heightened risk of causing injury or death. There still more than 8,000 of these vehicles remaining on the roads, and drivers can check the Product Safety Australia website if their vehicle is affected.

“Vehicles with critical airbags should not be driven. Please contact your dealer to arrange for your vehicle to be towed to the place of repair free of charge so you do not have to drive it,” Ms Rickard said.

The ACCC is also conscious of the impact COVID-19 is having on Australian consumers and businesses.

“We understand dealerships are still operating and are offering the services outlined in the compulsory and voluntary recall notices. Both the ACCC and the Department of Infrastructure, Transport, Regional Development and Communications will be closely monitoring any changes to these arrangements,” Ms Rickard said.

Consumers can also search for vehicles affected by the Takata compulsory recall by entering their number plate and state or territory at: IsMyAirbagSafe.com.au or by texting 'Takata' to 0487 AIRBAG (247224).

A list of vehicle manufacturer helplines and contact details is available at: Vehicle manufacturer helplines & contact details.

Takata fast facts

• In total about 3.62 million airbag inflators (88.1%) have now been rectified in about 2.64 million vehicles.
• This excludes 259,025 airbag inflators (6.3%) in 216,138 vehicles reported by suppliers as unrepairable (written off, scrapped, stolen, or modified and unable to have the airbag replaced). 
• There remains 228,764 airbag inflators (5.6%) in 196,299 vehicles outstanding for replacement.
• As at 31 March 2020, there are 1,895 vehicles with critical-alpha airbags and 6,471 vehicles with critical non-alpha airbags outstanding for replacement.
• Vehicles with critical airbags should not be driven, and drivers are entitled to have their vehicles towed to the dealership to have the airbag replaced for free. 

Notes to editors:

• The Takata airbag recall is the world’s largest automotive recall, affecting an estimated 100 million vehicles globally.
• It is the most significant compulsory recall in Australia’s history, with over four million affected Takata airbag inflators and involving more than three million vehicle recalls.
• Takata airbags affected by the compulsory recall use a chemical called phase-stabilised ammonium nitrate (PSAN). The ACCC’s investigation concluded that certain types of Takata PSAN airbags have a design defect. The defect may cause the airbag to deploy with too much explosive force so that sharp metal fragments shoot out and hit vehicle occupants, potentially injuring or killing them.
• In addition to the compulsory recall of vehicles fitted with Takata PSAN airbags, eight vehicle manufacturers have also issued voluntary recalls for some vehicles manufactured between 1996 and 2000, which may have been fitted with a different type of faulty Takata airbag, being a NADI airbag.