- Sales of luxury cars in Australia have fallen to the lowest level in over three years.
- From December 2016, they’re down 14.1%, coinciding with a decline in Australian home prices during this period.
- The negative wealth effect from falling property prices, along with a weaker Australian dollar and stability in interest rate, likely explains the fall in luxury car sales in recent years.
Australian new car sales are falling, especially for luxury models.
According to Commsec’s CommSec Luxury Vehicle index, collated using data from the Federal Chamber of Automotive Industries (FCAI), having fallen by 5.7% in 2017, luxury car sales fell by a further 8.9% last year to 91,642 vehicles.
The annual total was the smallest in three-and-a-half years.
The manufacturers included in the Commsec index are Aston Martin, Audi, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, McLaren, Maserati, Maybach, Mercedes-Benz, Morgan, Porsche and Rolls Royce.
As seen in the chart below, after peaking at 106,658 vehicles in the year to December 2016, luxury vehicle sales have now fallen by 14.1%, coinciding with a reversal in Australian home prices that have also fallen during this period.
“Sales of luxury vehicles have tracked movements in home prices over time,” says Craig James, Chief Economist at Commsec.
“Growth of home prices slowed from mid-2017 with prices starting to fall in October 2017.”
And those declines are accelerating.
According to Corelogic, Australia’s median home price fell by 1.1% in December, the largest percentage decline in over a decade. In the capitals, median prices fell by an even larger 1.3% in weighted terms, the steepest one-month drop since 1983.
Given both luxury car sales and home prices came off the boil at around the same time, James says this indicates the importance housing plays in influencing perceived wealth levels and, as a consequence, discretionary spending patterns.
“National home prices are now falling, dragged lower by the Sydney and Melbourne markets. And that affects wealth and confidence,” he says.
“So both the new vehicle market and housing market are slowing at the same time. And the ‘top end’ of both markets are leading the slowdown.”
The relationship adds to evidence that the downturn in the housing market is having a negative wealth effect, and not only for expensive cars but more affordable models too.
However, James says that’s unlikely to be the only thing impacting demand for high-end vehicles, noting weakness in the Australian dollar and stability in interest rates have also played a part.
“In 2013, luxury vehicle sales recovered as the benefits of a strong currency were passed through to buyers in cheaper prices. And both vehicle and home sales lifted from 2013-2016 in response to lower interest rates,” he says.
In the unlikely event the Australian dollar moves sharply higher in the period ahead, or unless interest rates are cut further, James says it will be left to other factors to support luxury car sales this year.
“The hope is that the tighter job market will lift wages, in turn boosting vehicle sales and home purchases,” he says.
As with so many other aspects of the Australian economy at present, the jobs market will likely determine what will happen next.
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