Plummeting property values drive new car sales down

Sales of Australian new cars have continued to drop, with data for the month of April showing that year to date sales are down by 8.1 percent compared to this time last year, while last month’s figures were the lowest thus far for 2019.

And though April is routinely one of the softer months for new car sales, with just 75,550 new vehicle registrations last month it’s the lowest result we’ve seen since April 2011, when 74,214 sales were recorded.

Why the big slip? The answer appears to be inextricably linked to the fortunes of the housing market.

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It’s no small secret that the Australian property boom is over. Housing values in Sydney and Melbourne have followed the lead of Perth and come down from their peak significantly, and a broader correction in house prices appears to be in progress.

Naturally, with around 70 percent of Australians owning their own home the majority of the population is already sensitive to movements in property prices. As such, they may be delaying the purchase of a new car in anticipation of further financial heartache to come.

Meanwhile the number of property investors, those with at least one investment property and who are the most exposed to market-induced hardship (especially those who’ve been gambling on capital gains with interest-only loans) is a far more modest 7.9 percent of the population. Even so, we can surmise that almost everyone in this group who was considering a new car this year is most likely re-evaluating that decision.

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However decreased consumer confidence among property owners isn’t the only reason sales are falling, according to Tony Weber, chief executive of the Federal Chamber of Automotive Industries:

“This decrease is the result of a number of factors in the Australian market, including the downturn in the housing market, the tightening of lending practices, environmental factors such as drought and flood, and, of course, the imminent Federal Government election,” Weber said.

“With all these elements currently present in the market, it is no surprise that Australian consumers are conservative in their approach to major purchases at the moment,” Mr Weber said.

From an industry point of view, it’s the top end of town that’s been hurting most thus far. With high-value assets like property suddenly shedding value en masse, it’s no surprise that luxury car dealers are moving less metal as a result.

Even Ferrari was flying high on the back of property price surges not long ago, but those days look to be over.

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“I think the year will be flat,” said Jaguar Land Rover spokesperson Tim Krieger to WhichCar.

“That whole luxury market has been affected [by property]. There’s a direct correlation between new car sales and housing. Sydney and Melbourne [house prices] are off significantly, so the car market as a whole has come off significantly.”

“If you take out all the overseas factors like WLTP [fuel economy overhaul], the market was trending down anyway and I think it’s a result of that housing collapse in Sydney and Melbourne,” Krieger continued.

And according to Krieger, there was also likely an element of substitution at play, as those in the ‘investor class’ shifted their car-buying plans toward more modest choices.

“For people who might have bought their house for $1.5 million and then saw it valued at $2.5 million, they’d be thinking ‘beautiful, I’ve got a million dollars of equity – time to buy a Range Rover Sport!

"But now they don’t have that, they might be thinking of a Mazda CX-9 instead.”

And looking at the sales data, it’s clear that the luxury market is hurting more than the rest. Year-to-date sales of small cars over $40K are down by 29.8 percent, versus a decrease of 18.7 percent for cars in the sub-$40K small segment.

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The medium passenger segment has the luxury sub-class slightly ahead of mainstream with an 11.8 percent decline (compared to mainstream’s 12.3 percent), however that figure is greatly skewed by the Lexus ES’s (above) wild 242 percent increase in year-to-date volume – a side effect of the arrival of a massively improved all-new model.

Take out the ES’ figures, and the medium luxury segment is down by 14.4 percent. Besides the ES, the only other models in that segment to really buck the downward trend are the evergreen Mercedes-Benz C-Class, and to a much lesser extent the Audi A4.

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That said, the small SUV over $40K segment has actually fared quite well, registering 11.4 percent year-to-date growth while the sub-$40K SUV segment shrank by 2.1 percent. That result is an outlier, however.

The medium SUV over $60K segment has endured a 9.8 percent slide over the same period (against a 6.3 percent drop for the sub-$60K category), while large premium SUV sales are down by a huge 23.7 percent versus a much less frightening 3.8 percent drop in the mainstream large SUV sector.

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Curiously, the upper-large premium SUV segment is actually surprisingly healthy, with year-to-date growhth of 42.4 percent coming courtesy of new arrivals like the BMW X7, Audi Q8, Lamborghini Urus (above) and all-new Mercedes G-Wagon, along with strong performance from the Lexus LX (below) and Range Rover.

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Are luxury car sales the canary in the coal mine when it comes to the direction of the property market? They’re certainly a symptom, and with most forecasters expecting further property pain over the next 12 months it seems that carmakers like Jaguar may have a hard task ahead of them.

“You look at what’s going on, we’ve got an election and potentially a change of government, which always makes people nervous,” Krieger said.

“Labor’s also got an [anti] negative gearing policy, and banks have also tightened up credit significantly… there’s a number of factors.”