Why are new car sales declining?

COMMENT

Spooked private buyers have deserted the new car market faster than commercial fleets.

And their volatile buying habits are hard to predict, compared with the steadier growth pattern of fleet buyers. But even the fleets are battening down the hatches for tougher times ahead.

Pundits blame the following factors for the smaller new car market in 2019:
• Tighter lending restrictions – a 'credit squeeze' or 'credit crunch', following the banking royal commission last year,
• Housing prices dropping from their heady heights of two years ago,
• Stagnating wage growth,
• Increased unemployment and underemployment for the first time in three years,
• Reports of the economy slowing,
• The high level of household debt in Australia,
• The apparent failure of tax cuts to reinvigorate retail spending.

These are the major factors, but there are any number of lesser reasons, which may include:

• The reluctance of younger consumers to go into heavy debt for a car,
• The rise of ride sharing,
• Car companies shying away from registering 'demonstrators',
• Stalling support for former local manufacturers,
• Indecision on the part of buyers contemplating an electric vehicle over a conventional car.

If all this reads like the market's current slow-down can be traced back to private buyers primarily, rather than fleet buyers, that reading is largely supported by sales data supplied by VFACTS.

Last year, 44.7 per cent of the market was composed of private sales, compared with 41.7 per cent of sales attributed to fleets. Despite that higher market share going to private sales, they were down by nearly 40,000 vehicles in 2018. Fleet purchases fell by less than 3800. Government purchases declined by 733 vehicles, but rental firms actually increased purchases by nearly 5800 units.

So the market's dive has been mostly driven by private buyers opting out. Unfortunately, the fleets are now taking their cues from private buyers, and have also pulled back on sales this year. As at the end of October 2019, private sales are down over 32,000 units, but fleet buyers for the same period have fallen even further behind, at over 37,300 sales, year on year.

Sales for 2019 are on track for an eight per cent slump on top of the three per cent decline in 2018. The Federal Chamber of Automotive Industries reports that October is the 19th consecutive month of lower sales.

It's not all doom and gloom, however. With two months of 2019 remaining, the market remains on track to pass a million sales – and there is a good prospect it will break through 1.1 million. And historically, that's not too shabby, although the population of Australia has grown dramatically since the last time the new car market was less than one million sales annually. That was back in 2009.

Two years before that, fleet buyers purchased more than 381,000 vehicles across the passenger, sport utility and light commercial classes, according to VFACTS. That amounted to 36.3 per cent of the million-strong market that year.

By the end of 2018, fleets were buying nearly 100,000 more vehicles for the year – a total of close to 481,000 fleet vehicles. Fleets' share of the market has grown consistently and steadily over that period from 2007 to 2018, other than slipping back to 35.8 per cent in 2014, the year of the Abbott government's 'horror' budget. The two events may not be causally linked.

Since then, fleet sales have recovered, but have fallen back below 41 per cent for the year to date in 2019. Fleet sales were also down during the final two years of the Rudd/Gillard/Rudd government, and private sales fell away in 2012, but picked up strongly in 2013.

The Australian market is not unique in experiencing a current downturn. Right around the world, new car sales are in line to plummet by four million units before year's end.

But America's trade war with China is blamed for much of that, and that's unlikely to have been a critical factor in Australia's market slide.

Pictured: The top selling vehicle in Australia during 2019, the Toyota HiLux