New research suggests property boom could give car sales a much-needed boost

Euan Black
Feb 05, 2020, updated Feb 07, 2020

Car sales might be set for a rebound after years of declines.

Car sellers have struggled in recent years, but fresh data suggests the worst times are in the rearview mirror.

Despite sales in January falling 12.5 per cent year on year, two pieces of research point to improved sales down the track, with one dataset linking the improved outlook to the runaway housing market.

National property prices have risen 6.7 per cent since hitting rock bottom in June – and economists believe that vehicle sales will be the first to benefit from a positive “wealth effect”.

Reserve Bank research has previously shown that customers rush out to buy new cars when the value of their home increases, and Commonwealth Bank’s latest household spending intentions report seems to support this view.

The data series combines CBA spending data with online search activity to predict future spending across seven different sectors.

It found a “distinct improvement” in motor vehicle spending intentions over the past four months, which senior economist Michael Blythe linked to rising house prices.

“We are certainly interpreting that as a sign that a positive wealth effect is starting to emerge,” Mr Blythe told The New Daily, while referring to the Reserve Bank research.

“If there was going to be a positive wealth effect from higher house prices … then motor vehicles is where you’d expect to see it. And there are some early signs of that happening.”

Despite the uptick, vehicle spending intentions still recorded a score below zero.

But Mr Blythe said the trajectory of the line was more important than the negative reading, given so few cars have left the yard in recent years.

“The levels are still very low. But after a couple of years of steady declines, any kind of improvement is actually quite a significant shift,” Mr Blythe said.

The research comes after annual car sales dropped to an eight-year low in 2019.

The Federal Chamber of Automotive Industries (FCAI) reported in January that Australians bought 1,062,867 new vehicles in 2019 – down 7.8 per cent year on year and the lowest number since 2011.

FCAI chief executive Tony Weber said the weak sales figures reflected tough economic conditions “with challenges including tightening of lending, movements in exchange rates, slow wages growth and, of course, the extreme environmental factors our country is experiencing”.

But a survey released this week by Money.com.au suggests the market could soon shift up a gear.

Echoing CBA’s findings, the survey of 1006 Australians found that 43 per cent of motorists planned to buy a vehicle this year, and 45 per cent would have done so earlier had the economy been in better shape.

Money.com.au spokesperson Helen Baker told The New Daily the reasons for the prospective sales boost aren’t all positive, though.

Soaring living costs and stagnant wages are forcing some motorists into swapping luxury cars for cheaper alternatives, she said, while others want to pay off debt and reduce their carbon footprint.

(SUV sales still command 45.5 per cent of the market, though.)

“People are still feeling the squeeze – we’ve got rising private health insurance, rising electricity costs, even petrol prices are going up,” Ms Baker said.

“And, on the other side, there’s a massive awareness about the environment and what we’re doing that’s contributing to that.”

The survey also found that younger car owners were the most likely to buy vehicles this year – 60 per cent of under-30s said they would make make a change, compared with 54 per cent of 30 to 49-year-olds, 39 per cent of people in their 50s, and 23 per cent of people aged over 60.

Electric vehicle boost

Days after the survey’s release, British Prime Minister Boris Johnson pledged to ban the production of new petrol cars from 2035.

EY energy leader Matt Rennie said the Australian government should consider a similar form of market intervention, arguing the government must spend a minimum of $5 billion over the next 20 years on electric vehicle charging stations.

“The UK decision to ban new vehicles is a direct intervention into the way markets work, and for that reason needs to be carefully scrutinised before applying such a step locally,” Mr Rennie said.

“In this case, however, there may be merit in doing so. Government intervention of this type may be necessary in Australia to send a strong signal to industry to start building the necessary infrastructure.”