Market Insight: Business sales drag down car market

A SERIOUS decline in new business vehicle sales is dragging down the Australian auto market this year and reflects a general wane in business confidence.

Industry figures released this week show that business vehicle sales fell by a substantial 9.1 per cent in May, dragging cumulative sales for the first five months of the year down 7.7 per cent compared to the same period in 2013.

Despite major incentives in the marketplace in recent weeks with the traditional rush toward the end of financial year, all major segments are suffering.

Business sales of passenger cars were down 4.8 per cent last month (-1.2 per cent year to date), SUVs were down 13.2 per cent (-10.7 per cent YTD) and light commercials were hit hardest of all – down 10.9 per cent last month to be 14.3 per cent behind for the year.

This is the major factor behind the Australian new-vehicle market’s 2.3 per cent downturn last month, leaving the industry down 2.9 per cent overall compared to this point last year.

Private car sales are currently running lineball with last year, up 0.4 YTD after modest growth of 1.6 per cent in May, while the lower-volume segments of government sales are up 6.2 per cent YTD (+5.9 per cent for the month) and rental sales are showing signs of improvement, still down 5.5 per cent YTD but experiencing a 10.8 per cent increase last month.

The latest figures come as Roy Morgan Research releases the results of its latest Australian business confidence survey, which shows that confidence fell 5.5 per cent last month from April following the National Commission of Audit report and the federal budget.

Business confidence, as measured by Roy Morgan, is now a considerable 16.1 per cent below the peak recorded in October 2013 (just after the federal government changed hands) and 7.4 per cent below the average over the past 12 months.

According to the authoritative research firm, which conducted 1372 interviews with all types of business across Australia last month, the main reason for loss of confidence in May was the decline in the proportion of businesses feeling that economic conditions in Australia would improve over the next 12 months.

This is now at its lowest level since July 2012.

As a result of this decline in outlook for the economy, there was also a drop of four per cent – to 54 per cent – in the proportion thinking that the next 12 months would be a good time to invest in growing their business, the lowest level since June 2013.

Roy Morgan Research industry communications director Norman Morris said the decline was unsurprising given the uncertainty created by the build-up and delivery of the National Commission of Audit report and the hard-hitting federal budget.

“The hoped-for improvement in confidence in the key areas of retail, construction and manufacturing, which were seen as making up for a slowdown in the mining industry, did not happen during May, and these sectors all remain below average in confidence,” Mr Morris said.

“The full impact of the budget will ultimately depend on the extent to which the federal government is able to get it passed by the Senate and how long this process is dragged out, creating instability and uncertainty, which is not a good environment to make business decisions.

“In the meantime, the low level of confidence in the economy picking up over the next 12 months is likely to subdue the appetite for business expansion and borrowing which is not good for economic growth and recovery.”

This is likely to have a sustained negative influence on business vehicle sales during 2014, despite the potential for improvement in June as the end-of-financial-year deals reach fever pitch.

New South Wales is currently the only state or territory holding ground in terms of new-vehicle sales this year, up 1.1 per cent amid downturns everywhere else, including a worrying 10.4 per cent decline in Western Australia.

Victoria, as the nation’s second-biggest market next to NSW, is 2.8 per cent in arrears, Queensland is down 4.4 per cent, South Australia 3.3 per cent, Tasmania 6.1 per cent and the Northern Territory and the ACT are down 4.6 and 4.4 per cent respectively.

Roy Morgan Research, meanwhile, says all states have similar levels of business confidence, with Western Australia only narrowly ahead of South Australia, Tasmania, Victoria, NSW and Queensland.

In May, all states showed some decline in confidence.

For new-vehicle sales across the board, NSW and South Australia were the only to remain steady last month, showing 0.3 and 0.1 per cent growth respectively, while the remaining states and territories experienced falls of between 0.7 and 13.6 per cent.