Market Insight: Luxury sales define market, not SUVs

AT FIRST glance, Australian buyers’ deep appreciation for SUVs looks to be propping up a struggling new-vehicle market this year, with sales of the high-riding wagons the only segment in positive territory as passenger cars and light and heavy commercial vehicles all head southward.

While new registrations of SUVs are up 3.7 per cent, the passenger car market is down 5.4 per cent, light commercials have stumbled 4.7 per cent and the heavy transport sector has fallen 3.2 per cent.

Delve deeper into the figures, however, and the heavily advertised image of typical Australians families buying SUVs and heading out on the adventure trail starts to pale as the trends show that prestige and luxury models are underpinning overall SUV sales growth while mainstream models have weakened considerably.

Luxury SUV sales have recorded double-digit growth for several years running, and this year are up 10.4 per cent – a result that to some extent masks the fact that sales of regular SUVs have climbed just 2.8 per cent.

At the same point last year, sales of mainstream SUVs were up 8.9 per cent while premium SUVs were continuing on their merry way, up 15 per cent, although the final quarter clipped growth to 10.6 per cent while regular SUVs finished 8.3 per cent ahead.

This occurred on the back of phenomenal growth in 2012, when overall SUV sales climbed 25.3 per cent with strong contributions from both the prestige and mainstream sectors – regular SUVs were up 25.9 per cent and high-end models climbed 20.4 per cent – and their combined contribution accounted for 27.5 per cent of all new-vehicle sales in Australia as the overall market rose a phenomenal 10.3 per cent.

As the market steadied last year – though still managing 2.2 per cent growth – and has stepped back 2.5 per cent thus far in 2014, total SUV share has held firm, accounting for 29 per cent of the entire market in 2013 and reaching 30 per cent after eight months of trading this year.

However, the 2.8 per cent growth of mainstream SUVs this year is back to a level not seen since 2011, having fallen 2.1 per cent in August compared to the corresponding month a year earlier and also returning negative results in January (-3.5 per cent) and February (-3.8 per cent).

It would require many months of deteriorating sales and market share for us to conclude that average Australians are falling out of love with SUVs, but this year’s limited growth reflects falling levels of consumer and business confidence that are dragging down the market as a whole.

Business sales of SUVs are down 10.5 per cent this year, for example, just as business sales of light commercials and passenger cars are also under pressure – down 11.4 and 4.4 per cent respectively YTD.

New registrations in the biggest-selling SUV segment in Australia – traditional mainstream small SUVs, led by the Mazda CX-5 and Toyota RAV4 – are down 1.9 per cent this year, having tumbled 8.1 per cent in August, while the large SUV segment, which now attracts almost as many buyers as the smaller models and is dominated by the Jeep Grand Cherokee and Toyota Prado, is up only 1.2 per cent this year after taking a 2.5 per cent hit in August.

The Toyota LandCruiser and Nissan Patrol that make up the mainstream ‘upper-large’ segment are also continuing to contract, down 13.3 per cent YTD.

These figures are offset by the burgeoning light-sized SUV/crossover segment, which is welcoming new entrants on a regular basis and is up 16.1 per cent YTD.

Yet the ongoing strength at the prestige end of each SUV market is particularly striking – sales of light-sized models (over $40,000) are up 11.2 per cent, the small/medium soft-roaders (over $60,000) are up 5.6 per cent after a 42 per cent surge in August, large models (over $70,000) have risen 12.7 per cent and upper-large flagship models (over $100,000) have climbed 20.4 per cent this year.

There is a similar story to be told in the passenger car segment, with luxury models in key segments defying the general industry downturn.

So while the positive sales of SUVs this year might be considered the airbag that is cushioning the overall market’s slowdown – this is not a crash – the underlying strength is coming from the luxury sector as a whole, particularly as the big-name prestige brands, notably Audi, BMW and Mercedes-Benz, lure buyers with more affordable new models.

The desire to hit the adventure trail might be strong among all classes, but as many in the community delay or abandon plans to purchase a new vehicle, mainstream manufacturers have plenty of cause for concern.