The only thing saving Australian car sales right now is taxpayers’ money

  • Australian new car sales fell for a second consecutive month in October, according to the Federal Chamber of Automotive Industries, leaving the decline from a year earlier at 5.3%.
  • Sales to Australia’s private sector were weak, masked by strong demand from government.
  • On top of weak retail spending in the September quarter, the data suggests recent weakness in the housing market may now be spilling over into other parts of the economy.

Australian new car sales fell for a second consecutive month in October according to the Federal Chamber of Automotive Industries, leaving the decline from a year earlier at over 5%.

“National vehicle sales for October reached 90,718, down 5.3% from October 2017,” said the motor industry’s statistical service, VFACTS.

“Year-to-date sales across the market are currently at 971,723, which is a 1.3% dip from the same period in 2017, which was a record year.”

So total sales are falling, albeit from the highest levels on record.

However, within the national figure, the VFACTS data had some unsettling news on household spending, especially following a weak September quarter for retail sales.

The falls were concentrated in the private sector, masked by booming sales to government.

“The decline was again most pronounced in sales to private purchases which were down by 12% across all vehicle types for the month compared to October 2017,” VFACTS said.

“This included falls in passenger sales to private buyers of 24.1%, whilst private SUVs sales were down by 3.2% and light commercial sales down by 4.3%.

“Year to date, sales to private buyers are now down 6.6% compared to the same period in 2017.”

Sales to businesses also fell by 4.1% from a year earlier, partially offset by a noticeable lift in government sales.

“Government purchases were up 6.7% in October 2018, with increases of 24.3% in SUV purchases and 9.3% in light commercials,” VFACTS said.

By state and territory, sales volumes fell in all locations over the year except Tasmania, ranging from a drop of 9.2% in New South Wales to 1.7% in Western Australia.

Sales also fell by 4.2% in Victoria from a year earlier, despite booming population growth and firmer labour market conditions over this period.


The decline in vehicle sales in these states hints that recent falls in property prices in Sydney and Melbourne, the state capitals, may be starting to impact households through a reduced wealth effect.

In a note released in late September, Capital Economics said Australian housing wealth could decline by $800 billion over the next few years, creating downside risks for household spending and GDP growth.

“We don’t think the wealth effect is dead or that households will be able to shrug it off,” said Marcel Thieliant and Ben Udy, economists at Capital Economics, in reference to anticipated falls in home prices.

“Given that housing accounts for around 50% of household assets, a 12% drop in prices would reduce household net wealth by around 6%. A 6% fall in net wealth is consistent with household consumption growth slowing by around 1.5 percentage points.”

While not everyone agrees declining property prices will impact household spending, especially should labour market conditions remain firm, today’s data, accompanied by weak retail sales in the September quarter, suggests housing market weakness may now be spilling over into broader parts of the economy.

For some time, the RBA has said that “one continuing source of uncertainty is the outlook for household consumption”, in particular, “how consumption would respond if there were an extended period of low income growth, and/or declining housing prices”.

While the jury is still out on that front, recent indicators suggest households may be responding by cutting back spending in discretionary areas.