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Rate hike impacts minimal, says Hyundai

Sharp rises in interest rates haven’t resulted in buyers dropping orders en masse

4 Apr 2023

DOOM and gloom headlines around the increasing pressure of interest rates have been a frequent sight since the Reserve Bank of Australia began lifting the cash rate in May of last year, but according to the local head of Hyundai Motor Company Australia (HMCA), that economic pressure has yet to have a substantial impact on new vehicle deliveries.


The outlook is that the total tally of 2023 will likely look just as healthy as previous years. Though fewer people are opening their wallets to place an order for a new car, the industry is increasing its ability to supply cars in reasonable time. Couple that with plenty of carry-over orders from the 2022 calendar year, and there’s still a lot of orders to fulfil.


“I’m still confident that we’re looking at a market that’s 1,050,000 or 1.1 million (by the end of the year), and my confidence is largely driven by the fact that we’re definitely getting significantly more production year-on-year in the first quarter,” HMCA chief operating officer John Kett told GoAuto.


The challenge now is trying to get them through the wharf.


“I think the availability of cars will lift, I feel like that momentum is still with us. I feel like the order banks that we have, and the carryover order banks haven’t diminished by a lot. We were expecting some degrading associated with the constant increases in interest rates and the impact it may have on sentiment, but we haven’t quite seen it yet though.”


Mr Kett did acknowledge that there would be some lag between consumers placing an order and getting cold feet, especially as interest rate rise activity continued over the Christmas holiday period and meshed with other high household spending during that time.


Quotes for new car purchases also tended to be valid for 60 to 90 days, and considering the speed with which rate rises have occurred, many hot leads would have unsurprisingly gone cold in that time. For a great many Australians, financial pressures are undoubtedly putting a clamp on aspirations for new car purchases.


“The reality for me is that it’s there and it’s real, but the market is still trending towards, maybe, 1.05 to over 1.1 million (units). Last year based on the order rates of some key players the market was trending toward being a 1.4 million market – and it’s never been like that before, ever,” he said.


“And it won’t ever get that big given the population size and demand, so the reality for me is it was never going to be able to deliver the orders that people had in the system, and now it’s just normalising back to a level that I think is a good average for the Australian market.


“I’ll be proven wrong, most certainly,” he joked, “but that’s my feeling. We’ll get a sense as we got into the second quarter on whether we see some significant deterioration, but my gut feeling is that even if the private buyers start to reduce a little bit, the reality is that fleet has been out of the market for two or three years and the need to turn over their stock. It’s quite aged.


“Whether it’s a small, medium, very large or even rental companies, they need to turn their cars over. So, it may change the profitability profile for dealers and OEMS, but most certainly I still feel comfortable that we’re looking at a number around 1.1 million for the year.”


However, there are some hints that the market mix is shifting slightly in response to economic headwinds.


“Our mix has started to trend a little bit back toward fleet, I would have to say, but when I say ‘trend’ I’m talking only about a few points,” Mr Kett told GoAuto.


“We’re at about 80 per cent what we call retail buyers and small business, and we’ve been like that now for probably a year and a half. There’s just some slight movement back to fleet, but not materially enough that we should be concerned with.”


As for those private buyers, Mr Kett said the bulk of cancellations don’t appear to have much to do with financial pressure brought about by interest rate rises.


“When we look at our carryover order banks, we’ve had our cancellation levels at about 10 per cent on average, just naturally, and we’re not getting a lot of cancellations on the basis of ‘I’ve changed my mind because of economic sentiment’, or ‘I haven’t had my loan re-approved since the last time it was approved because you took six months to get me a car’,” he said.


“We’ve had some, but most of (cancellations) are from people that we’ve either got into another Hyundai, or they actually had their names down on multiple cars at the same time.”

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