What will the Australian car industry do in 2020?

Australia’s new vehicle market will face familiar challenges in 2020, with the likelihood of increasing prices and a possible recovery later in the year.

So says Volkswagen Australia managing director Michael Bartsch.

Speaking with carsales, the local VW chief said 2019 marked one of the toughest years ever for the automotive market, comparing it with the Global Financial Crisis of the late noughties.

“When you overlay all the variables that we can’t control, and then overlay all the variables that we can control that didn’t go in our favour – delays in WLTP and getting small SUVs and replacement of some of the commercial vehicles – it’s tough out there,” Bartsch said.

“The banking industry, the hold-back from the election, the impact of housing prices, the banking Royal Commission, slow wages growth. What a year it has been.”

So, what will the next 12 months bring for the new car market? Bartsch believes it will be a mix of good and bad, pointing to similar variables along with further ‘uncontrollables’ including the drought gripping much of the country.

“It depends on how you wake up in the morning when you look at the economic indicators,” Bartsch began.

“On one hand the house prices are starting to recover again and we always know that vehicle sales are linked to the housing price index.

“That’s a really good sign. The banks will start getting tired of the over-restrictive world they’ve created for themselves with the credit squeeze.

“They will find where that pendulum should have swung. I’m fairly confident it will find its way back to where it should be. On that side I’m reasonably optimistic.

“But when you look at the other side, looking at productivity, real wages growth and household debt, you get concerned. Then when you look at the Australian dollar, the way it is now it’s inevitable there has to be price increases across the board,” Bartsch continued.

Bartsch noted models including the Mazda3, which has experienced an 18 per cent slump in sales in 2019, as having already been impacted by pricing pressures.

“The really interesting lesson has been Mazda. I have the highest regard for Mazda and the way they run their business but the Mazda3 has been taken an incremental step in its price position, and they’ve been running 20 to 30 per cent less year-on-year in their monthly sales race; it shows how incredibly price-sensitive the market is,” he observed.

The Australian new car market has dipped 8.2 per cent year-on-year through the first 11 months of 2019, on the back of soft passenger car sales and stagnant performances by the most popular manufacturers with the exception of Kia.

According to the FCAI, the immediate forecast for new car sales in Australia is mixed. Spokeswoman Lenore Fletcher cited contrasting factors such as the recent uptick in the Australian housing market mixed with continued tighter lending conditions from the banks, and the early onset of the bushfire season in recent weeks.

“We think that 2020 will be a similar situation to 2019,” she said.

“But one of the things we’ve been saying is there’s never been a better time to buy a new car. We’re at the end of the year, it’s traditionally a time of year where you’re going to start seeing some great seasonal specials as well, but given the tough market there are some good deals out there that different OEMs are using in an effort to try and stimulate the market.”

Bartsch expected that softening trend to continue through the first six months of 2020. Beyond that point, he said the market was in the lap of the gods to some extent.

“I don’t think much will change in the first half of the year, which is a really easy way of abdicating any sense of intelligence of what to predict,” he said.

“In the second six months, you would have to think if we’re going to come out of this that will be when we start seeing a swing.

“Either we’ll see the relaxing of the stresses that have come from the so-called trade war affects, we should see whether or not we’ve come out of the drought; if it goes all the way through summer and then winter of next year, then boy, we really have a problem.

“It’s a really difficult thing to call. There’s also the little things you don’t see, the housing bubble… the safe haven money coming in from the likes of Hong Kong, which distorts the real market. There’s also where we go with any Free Trade Agreements, I don’t know.

“If we finish at 800,000 passenger cars this year, then we would be doing really well next year if we finish at 840,000 on passenger vehicles. Really well.

“For commercial vehicles, if it finishes at 250,000, picking up by 10,000 units, then it would be doing really well.

“But I can’t see it. If we get the growth in the second half of the year, I think 840,000 would be really optimistic.

“What’s really important on focussing on next year is that this is the new normal, and that might be plus five per cent, then we have to restructure the businesses for them to work effectively.”