Where the market's headed in '09

The car industry is still trying to get their collective heads around the exodus from the market in 2008, let alone come up with a viable forecast for 2009. Predictions are beginning to roll in though.

As we mentioned in our VFACTS report earlier this week (more here), Mazda's Doug Dickson has already gone on record forecasting a market of 900,000 units this year.

David McCarthy at Mercedes-Benz doesn't agree and has set sights much lower -- around 820,000 units. Jutta Dierks, MD at Volkswagen admitted that she has "never seen anything like this" current economic situation, but for all that, doesn't anticipate the market will go as low as Doug's prediction

Andrew McKellar, Chief Executive of the FCAI -- the peak body representing car companies in Australia -- is pinning the industry's 'hopes' on a tally of about 880,000.

Fresh from posting a new sales record in 2008, Toyota, with the benefit of a large customer base to evaluate consumer confidence and trends, is cautiously confident that McCarthy's figure will prove too low and that either Dickson's or the FCAI's estimates will be closer to the truth.

The problem for Toyota and other car companies is that the price slashing to clear stocks at the end of 2008 has created an artificial blip of sorts, compensating for what would have been a deep pit in sales as prospective buyers held back their savings as a consequence of worsening job security and tighter lending restrictions.

So the discounting-fuelled blip may have offset a short-term slump or it may have merely staved off an inevitable long-term predicament. Nobody seems to know, but Toyota's David Buttner, Senior Executive Director Sales and Marketing, is encouraged by what seems to be improving consumer confidence among private buyers.

"It's interesting. What we found in the first half of the year... we come out of 2007, the mix between private buyer and 'other', which is basically government, rental and fleet, was 50/50," Buttner told the Carsales Network by way of explanation.

"In the first half of the year, the private buyer mix slipped back to 48 per cent and the 'other' went to 52 per cent. What we saw in the last quarter -- but November and December in particular -- was the return of the private buyer. Our private buyer share improved in November/December.

"Now you've gotta be careful, because there were a lot of good offers out there, so was it on the back of the offers only, or...? When you look at the elasticity of interest rates, it usually takes two or three interest rate reductions before it has any impact in the market.

"One mind is telling us that this is the private buyer coming back, because when you've got four consecutive months when you've got a letter from your bank saying 'your housing loan repayment has now been reduced by $400', then you get the cumulative effect of that...

"We think that there is some return in private buyer consumer confidence and what we also notice -- and we've got to be careful again, because November/December/January are always historically lower fleet months than any other part of the year -- but our sense is that that drop-off was a bit greater than just the seasonality.

"Usually, when you go into this type of economic circumstance we're in now, the first people to pull the reins up are the private buyer -- and investors usually have a lag effect of three to four months. Perhaps we're starting to see that lag effect come into play now."

Of course, the converse is true too; if we wait three to four months subsequent to the private buyers re-entering the market, the fleet buyers should return. On that point, Buttner peppers his views with some of the negatives being thrown around currently, in order to explain why the 2009 market may not achieve any but the most pessimistic predictions.

"It really depends, because when you've got people talking about lay-offs and you've got the mining segment down in the pocket on the back of reduced commodity demand from China and other associated countries... There are already people being laid off from mines in far north Queensland and Western Australia, so there's going to be some impact [from] that.

"You've got a lot of large companies who are also laying off people. They buy cars for those people... they've had surplus cars. You've got fleets who are due to change over at the end of three years, who are saying 'I'm not going to change over now for at least another 12 months', so there are a lot of factors in play at the moment, in that business market."

However, Buttner doesn't ignore the encouraging signs for new-car buyers.

"It's easy to look at the negatives, but there are a lot of positives too, in terms of the economy. We've gone from 7.5 per cent cash rate to 4.25, and they're talking again on the radio this morning; although the Reserve Bank is meeting in January, there's an expectation that there'll be another significant drop in February.

"Fuel prices have come off the heady heights of where they are and most places now... I was in Victoria last week and it's sub-a dollar [a litre], it's close to a dollar here in NSW. They're all positive signs for the private buyer.

"The business community will respond to the economic cycle we're going through. I remember when I studied commerce many years ago, we used to talk about the 'velocity of money'. If I spent some money, then somebody either had to supply me with either a good or a service. If I stopped spending, then the circulation or the velocity of that money started to spiral down -- and that's where we've been in the economy.

"But if your confidence returns and people start spending again, there's no reason why we can't have another strong market."

With perhaps 100,000 fewer sales in the market this year -- and perhaps an outcome even less favourable -- it's easy to forget that the market for 2009 would merely be returning to the same level as in 2004 -- one of a string of record-breaking years for sales. That's a point that Buttner acknowledges.

"What we tend to forget is that we look and say 'oh gee, we've had two years of a million' and if it drops to 900, it's doom and gloom, but 900's still a fantastic market.

"In a 900 market, for people who really apply their energies in the appropriate areas, there's still an opportunity to grow volume and share. Our absolute focus is to always outgrow the market. If you don't do that, you're just treading water, retaining the status quo -- and that's not our intention."