Market Insight: Affordability clips car sales

ATTEMPTS to curb inflation by raising interest rates is clipping revenue for several industries and, as an example, shows up in the car game with a change to what customers are buying.

Simply, disposable income has been hit by the interest rate rises. But it’s only affecting people who would normally look at lower-priced new cars.

In the latest car sales data, a split of vehicle prices is showing that lower-priced cars are being shunned as interest rates bite, while the more expensive models are actually increasing market share.

The ‘light’ passenger car category is divided into sub-$30,000 and over-$30,000 price brackets. Year-to-date, the cheaper end of the category is down 17.8 per cent and the more expensive segment is down slightly less at 13.7 per cent.

Much of this is attributed to vehicle availability and also a gentle flow of prospective car buyers into the growing light SUV segment.

But the gap becomes more pronounced in the small, medium and large passenger car categories.

The ‘small’ class is divided into sub-$40,000 and over-$40,000 brackets, with the less-expensive list of models down 31.7 per cent on the same period in 2022.

While that group is down in sales, the over-$40,000 cars are up a strong 78.9 per cent, indicating it could be people who are able shrug off the interest rate rises can afford the more expensive cars,

Another factor could be the ‘bracket creep’ caused by some mainstream models migrating into higher-priced segments.

The disparity between the cheaper cars is also apparent in the medium car class where the sub-$60,000 bracket (price brackets vary in different categories) is down 37.7 per cent in sales for the four months of 2023 compared to the same period last year.

Meanwhile, the over-$60,000 cars are up 61.1 per cent in sales; much of which is caused by popularity of the Tesla Model 3.

It is a similar story with the large car class. The cheaper end of sub-$70,000 cars is down 12.2 per cent while more expensive cars above that figure are selling more, up 17.7 per cent on last year.

Activity in the small segment year-to-date data shows that Toyota Corolla sales are down by a third on the same period in 2022; Kia Cerato is down by about two-thirds; and the Subaru Impreza volume has halved while the departing efficiency-focused Hyundai Ioniq and Toyota Prius have also savaged the sales charts.

Simultaneously, the over-$40,000 sector has seen a lot of buyer interest in the BMW 1 and 2 Series models (sales of which have doubled) and the Audi A3 (up about three times) while stock of the Subaru WRX has rekindled sales after last year’s model runout. Sales of the WRX are up 15 times in the four months of this year.

The sub-$60,000 ‘medium’ players who suffered this year only number six models. The biggest loss is the Hyundai Sonata (production delays) with 90 sales this year compared with 266 in 2022, and the Toyota Camry, which is down 51.4 per cent.

The winners are the over-$60,000 models which number 19 entrants, although one – the Lexus IS – is now no longer available. 

Buyer interest is shown in the Audi A4 and Jaguar XE (up 56 and 71.4 per cent respectively), both as buyers show pent-up demand and the flow into the upper-priced cars.

Those two are not alone. Also winning on the more affluent buyer trend are the Genesis G70 (up 85 per cent); Lexus ES (up 66.9 per cent); Tesla Model 3 (up 97.3 per cent); and Volkswagen Arteon which is up 100.9 per cent.

Australia’s large car segment only showed a gain of 17.5 per cent in the over-$70,000 category because of buyer demand for two all-electric models – the Audi E-Tron GT ($180,200 plus on-road costs) and Mercedes-Benz EQE (from $134,900 + ORC) – which contributed 284 sales in the four months of 2023, sufficient to push the category into positive territory.

The sub-$70,000 group now consists of three players and one of those – Citroen’s C5 X – is a newcomer. The group is usually supported by its top seller, the Skoda Superb, but supply issues brought sales down 64 per cent compared with 2022.

Problems with production and logistics aside, interest rate rises have appeared to play a part in winding down sales of the lower-priced models.