Luxury vehicle slowdown poses risks for homes
20 Apr 2017From Craig James – Chief Economist - CommSec
Consumer confidence; New vehicle sales; CommSec Luxury Vehicle index
- New vehicle sales: The Bureau of Statistics (ABS) reported that new vehicle sales rose by 1.9 per cent in March – the third rise in four months. Annual sales of SUVs were at record highs.
- CommSec Luxury Vehicle index: Sales of luxury passenger cars and sports utility vehicles (SUVs) stood at 105,265 in the year to March, down 1.2 per cent from the December 2016 record highs. Annual growth of luxury vehicle sales has fallen to 4-year lows.
- Consumer confidence: The ANZ/Roy Morgan consumer confidence rating fell by 1.9 per cent to 112.6 in the latest week after rising 3.3 per cent in the previous week.
What does it all mean?
- In the past, a slowdown of luxury vehicle sales has heralded a slowdown of upper-end property sales and prices. And, in turn, slower growth of top-end home prices has in the past led to softer growth of home prices more generally. So the indicator bears watching with annual growth of luxury vehicles now at the slowest pace in 52 months.
- Consumer confidence has been volatile over the past few weeks. But the trend has been basically flat and the confidence index is not far from the longer-run average. Simply, confidence is just OK at present. The positive outlook for family finances suggests a positive outlook for spending.
What do the figures show?
- The ANZ/Roy Morgan consumer confidence rating fell by 1.9 per cent to 112.6 in the week to April 15/16 after rising 3.3 per cent in the previous week. Confidence is down 2.8 per cent over the year and below the average of 113.2 since 2014. Four of the five components of the index fell in the latest week:
- The estimate of family finances compared with a year ago was down from +7 to +6;
- The estimate of family finances over the next year was up from +24 to +27;
- Economic conditions over the next 12 months was down from -3 to -5;
- Economic conditions over the next 5 years was down from +6 to +2;
- The measure of whether it was a good time to buy a major household item was down from +40 to +33.
- In addition the inflation expectation 2 years ahead, remained at 4.3 per cent. Inflation expectations have now held above 4 per cent for the past 18 weeks.
New vehicle sales
- According to the Australian Bureau of Statistics (ABS), new vehicle sales rose by 1.9 per cent in March – the third gain in four months. Passenger car sales fell by 1.2 per cent but sales of sports utility vehicles rose by 3.0 per cent. And sales of “other” vehicles (includes utilities, panel vans, cab chassis, goods carrying vans, rigid trucks, prime movers, non-freight carrying trucks, and buses) rose by 5.5 per cent.
- New vehicle sales are down by 3.0 per cent over the year. Passenger car sales are down by 11.6 per cent, while SUVs sales are up 4.4 per cent and “other vehicles” are up by 1.3 per cent.
- In rolling annual terms, 1,172,150 new vehicles were sold over the year to March. Sales of SUVs (443,756) were at record highs in annual terms, while annual sales of “other” vehicles stood at record highs of 251,929. Sales of passenger vehicles fell to a 22-year low to 476,465 in the year to March.
- Across states and territories in March: NSW (up 1.0 per cent); Victoria (up 3.7 per cent); Queensland (up 1.0 per cent); South Australia (up 5.5 per cent); Western Australia (up 1.0 per cent); Northern Territory (down 7.5 per cent); ACT (up 1.7 per cent).
CommSec Luxury vehicle index
- Sales of new luxury passenger cars and sports utility vehicles (SUVs) stood at 105,265 in the year to March, down 1.2 per cent from the December 2016 record highs. Annual sales of Mercedes Benz, Ferrari, Bentley, Maserati, McLaren and Jaguar are all at record highs.
- The 17 luxury vehicle marques tracked are: Audi, Aston Martin, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, Maserati, Maybach, Mercedes-Benz, Morgan, McLaren, Porsche and Rolls Royce.
- Luxury vehicles account for 11.45 percent of all passenger cars+SUVs, down from the 11.50 per cent record highs in December. Three years ago luxury cars accounted for just 8 per cent of passenger cars+SUVs.
- Annual growth of new luxury vehicles has slowed markedly over the past year. In April 2016, annual growth was 19.7 per cent. In March 2017 it was just 5.2 per cent – the slowest growth in 52 months.
What is the importance of the economic data?
- The ANZ/Roy Morgan weekly survey of consumer confidence closely tracks the monthly Westpac/Melbourne Institute consumer sentiment index but the former measure is a timelier assessment of consumer attitudes and is now closely tracked by the Reserve Bank.
- The Australian Bureau of Statistics provides seasonally adjusted and trend estimates of industry data. The Federal Chamber of Automotive Industries releases estimates of car sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
What are the implications for interest rates and investors?
- In economics, no relationship is perfect. But in the past, a slowdown in sales of luxury vehicles has signalled a slowdown of upper-end property prices. And when the top end cools, invariably this infiltrates the broader market. Luxury vehicle sales are still very good; rather growth of sales is coming down from stellar levels.