Low spending intentions mirror car industry decline

THE latest data from the Commonwealth Bank Household Spending Intentions (HSI) series released last week indicates that motor vehicle intention purchases have stalled after showing signs of a recovery in recent months.

Reflecting new-vehicle sales figures that have been in decline for the past 19 months, the HSI figures which track spending intentions across a range of sectors had shown that after a massive plunge late last year through to the first half of 2019, positive signals of an upswing for car purchases were emerging.

But in contrast to sectors such as the housing market, where buying intentions are increasing sharply, motor vehicle purchases have proven to be a low priority for Australian consumers in the current economic climate as the HSI index went backwards again in October.

It is worth pointing out that the early signs of stabilisation over the past few months also came at a very low level.

“The recent slight improvement in motor vehicle purchase intentions from deeply negative territory has now stalled,” said CBA chief economist Michael Blythe.

“(In contrast), the sharp upswing in home buying intentions continues and intentions are now approaching the record highs seen in early 2017.”

The HSI data combines an analysis of customer behaviour from CBA’s transactions data and household spending intentions from Google Trends searches.

Beyond housing, Mr Blythe said the overall picture is one of a “gentle upturn” with retail, entertainment, travel and education sectors all trending upwards to offset the levelling out of health and fitness spending intentions and the decline in vehicle purchasing.

October VFACTS figures show that the new-vehicle market fell 9.1 per cent last month compared to October 2018, keeping the industry down 8.0 per cent for the year to date.

Every state and territory recorded a negative result for the month, and are similarly in arrears on a year-to-date basis, while every major vehicle category in the market – across all buyer types – are also in decline.

Where continuing strength of commercial vehicle and SUV segments had been offsetting the ongoing downturn in sales of passenger cars, last month’s figures saw light commercials down 11.0 per cent, heavy commercials -18.2 per cent and SUVs -3.0 per cent as passenger cars fell 15.3 per cent.

For the year to date, sales of light and heavy commercial vehicles are down 4.9 and 7.6 per cent respectively, while SUVs have fallen 3.3 and passenger cars 16.1 per cent.

Excluding heavy commercials, sales across these major categories are being hit by every class of buyer – private owners (-8.7% last month, -8.0% YTD), businesses (-5.2% last month, -7.3% YTD), government (-8.2% last month, -5.0% YTD) and rental companies (-27.2% last month, -6.5% YTD).

In preparing its monthly HSI reports, the CBA has acknowledged the automotive industry’s concern about the availability of finance as a key issue restraining vehicle purchase activity.

The Reserve Bank of Australia has also previously identified vehicle spending as being particularly susceptible to the negative wealth effect of falling dwelling prices, although recent improvements in house prices are not yet flowing through to new-vehicle sales.

In handing down the October sales results, Federal Chamber of Automotive Industries (FCAI) chief executive Tony Weber reiterated again that the peak industry body’s primary concern was the impact of a highly regulated finance sector.

“While the drought and other domestic conditions are impacting the market, our key concern is the effect over-regulation of the financial sector is having on new-vehicle sales,” he said.

“The FCAI and our members have been concerned about the risk-averse approach to lending in Australia for some time and see improved access to finance as a key to driving economic growth in 2020.”

See also:

FCAI questions tight finance