Not firing on all cylinders
The Australian car market is navigating turbulent waters, with conditions expected to worsen before stabilising. As interest rate hikes continue to pressure household and business budgets, consumers appear to be eschewing big-ticket purchases like cars.
According to Barrenjoey’s latest consumer health check survey of more than a thousand Australian consumers, consumers are “becoming more cautious on their financial position”, with spending intentions on both travel and renovation consequently declining.
The July 2024 survey revealed consumers, in aggregate, expect their household situation to worsen within the next year. This is a sharp deterioration from April, when consumers had a net positive disposition.
For most consumers, grocery pricing, petrol prices and energy costs remain the primary concerns.
Meanwhile, the rising stockpile of cars in dealership lots suggests consumers have shied away from bigger-ticket items.
Australia’s June new car sales dropped by 4.2 per cent compared to the same time last year, suggesting 13 consecutive cash rate increases by the Reserve Bank of Australia (RBA) are starting to bite. While the six-month figures to June 30 revealed an 8.7 per cent increase in new vehicle sales, the number would have been higher if not for June’s slump. The question for car dealers is whether June’s decline is beginning a new trend.
That question may have been answered at a recent auto industry conference. According to the Australian Financial Review, sentiment among dealers was notably bearish, and Citibank analysts also reported industry participants expect continued pressure on new car sales. As a leading indicator, declining inquiries, down 30 per cent by some estimates, and a 10 per cent reduction in orders does not bode well for sales over the remainder of the year.
The gloom in sales has forced dealers to drop prices at the same time that fleet bailment costs rise, and consequently, dealership margins are reportedly down 20 per cent in the first half of the calendar year.
For investors, these trends underscore the broader economic impact of rising interest rates, which are dampening consumer spending across various sectors. The car market, a bellwether for consumer confidence and discretionary spending, reflects the tightening financial conditions faced by Australian households and small businesses.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
