Australian new car sales are still falling, especially where home prices are weak

iStock
  • Australian new car sales are still falling.
  • The declines are widespread across most categories and states, and are being led by New South Wales and Victoria.
  • Falling home prices and tighter lending standards are the likely culprits behind recent trends.
  • RBA Governor Philip Lowe will deliver a speech on “The Housing Market and the Economy” on Wednesday.

Australian new car sales fell heavily in the year to February, adding to a lengthening list of unsettling indicators on the strength of household spending.

According to Federal Chamber of Automotive Industries (FCAI), new car registrations fell to 87,102 in February, down 9.3% on the level of a year earlier.

By type, sales of passenger, sport utility and heavy commercial vehicles slumped by 21.3%, 6.3% and 5.8% compared to the same month a year earlier. The only category to record an increase over this period was the light commercial market with sales lifting by 6%.

Sales also fell in each of Australia’s states, and in the ACT, with the steepest declines reported in New South Wales and Victoria, those markets where property prices have fallen the fastest over the same period.

FCAI

Combined with January’s figures, total new car sales have fallen 8.4% in 2019 compared to the same period a year earlier.

“Given the current challenging economic conditions, including a downturn in the housing market, the automotive industry is not surprised by the slower start to the year,” said Tony Weber, chief executive of the FCAI.

While a declining wealth effect from weaker house prices is undoubtedly a factor behind the decline, especially as the family car is often the largest-single purchase made by households beside their home, the impact of tighter lending standards — something that has been a major factor behind falls in home prices across the country — is another reason why sales of new cars are continuing to decline from the record levels seen last year.

According to the Reserve Bank of Australia (RBA), “uncertainty about the recent momentum of consumption and factors affecting households’ future consumption decisions remains a key risk for the domestic economic outlook”.

In February, it also warned that if home “prices were to fall much further, consumption could be weaker than forecast, which would result in lower GDP growth, higher unemployment and lower inflation than forecast”.

The bank has also nominated a sustained increase in unemployment or lack of progress in returning inflation to target as two possible triggers that could warrant additional monetary policy support.

Given the recent trends in consumer-related economic data, including today’s new car sales report, the interaction between falling home prices, high levels of household indebtedness, weak wage growth and household spending appears to be contributing to a pullback in household spending.

Given that backdrop, a speech from RBA Governor Philip Lowe on Wednesday, entitled “The Housing Market and the Economy”, will naturally attract a lot of attention given mounting expectation that the bank will cut rates later in the year.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.