Encouraging pickup in car sales

Car sales

• In December, 86,587 vehicles were sold, down by 2.4 per cent compared with a year ago. In seasonally adjusted terms CommSec estimates that sales rose by 1.5 per cent in the month
• Over the year to December 235,285 four-wheel drive vehicles were sold – up 25 per cent on a year ago.

What does it all mean?

• The latest data on car sales is certainly encouraging. Over 86,000 vehicles were sold in December, however the substantial improvement in passenger vehicle sales is what really stands out. In original terms over 51,000 passenger vehicles were sold – marking the best result in six months.
• The strength in the labour market is the clear underlying driver in the pickup in activity. With a sustained increase in employment and resulting improvement in job security, households are once again tentatively spending on big ticket items.
• Interestingly Australia’s love-affair with the four-wheel drive vehicle is far from over. Not only are annual sales just shy of record highs but 4WDs also represent more than one in four cars/4WDs sold each month.

What do the figures show?

Car sales:

• The Federal Chamber of Automotive Industries reported that 86,587 new cars were sold in December, down 2.4 per cent on a year ago. Passenger car sales were up 9.5 per cent on a year ago, 4WDs were down 5.4 per cent and “other vehicles” (trucks, utes etc) were down 24.4 per cent.
• Over the past twelve months, 1,035,574 new cars were sold, up 10.5 per cent on a year ago and marking the second best year on record. Over the year to December, 235,285 four-wheel drive vehicles were sold, easing from the record high of 236,346 vehicles sold in the year to November.
• CommSec estimates that in seasonally adjusted terms car sales rose 1.5 per cent in December.

What is the importance of the economic data?

• The Federal Chamber of Automotive Industries release figures on new car sales at the start of each month. The data is useful in gauging consumer spending behaviour.

What are the implications for interest rates and investors?

• The tentative pickup in consumer spending patterns is still in its infancy and can easily evaporate if interest rates are raised too quickly.
• Until a sustained increase in activity takes place, profitmargins at retailers will remain under downward pressure.
• A period of interest rate stability together with the continued improvement in labour market are the key planks of support for retailers.