New data suggests interest rate hikes are yet to dampen spending on cars, with new- and used-car purchases and loan applications rising in August – after vehicles ordered months ago arrived in significant numbers.
Household spending on new cars increased by 13.3 percent last month according to the latest data from the Commonwealth Bank, as large shipments of motor vehicles ordered months ago finally arrived.
Industry analysts say rising interest rates are yet to slam the brakes on motor vehicle sales, and most car buyers can still afford to commit to purchasing decisions they made months ago.
According to CommBank’s Household Spending Intentions (HSI) Index – which measures car-related transactions completed by Commonwealth Bank customers – August 2022 saw a rise in both new- and used-car purchases, as well as personal loan applications to buy motor vehicles.
“Obviously, 13.3 percent is very strong,” CommBank’s Chief Economist, Stephen Halmarick, told Drive.
“We think it was people pre-ordering cars – placing a deposit – and the cars then arrived in August, meaning they completed that payment.”
The reported increase in new-car spending occurred despite the Reserve Bank of Australia lifting Australia’s cash rate to 1.85 per cent in early August, with a fifth consecutive rate hike in early September bringing the current cash rate to 2.35 per cent.
While the rate of new-car spending is not as high as pre-pandemic levels – down by 5.8 per cent compared to the same period last year – the 13.3 per cent monthly rise is noteworthy as it follows seven months of decline in new-car spending. and a small gain in July 2022.
Although spending on cars typically mirrors spending on houses – which CommBank expects will fall by 15 per cent from peak November 2021 levels to a mid-2023 trough – the latest data suggests the automotive sector may stay stronger for longer.
“As house prices fall, you’d [tradtionally] expect motor vehicle sales to fall as well – but because we’re in a phenomenon where people have ordered cars over the last 12 months, we might see the motor vehicle sector hold up as people take delivery of these cars,” said Mr Halmaric.
“It’s now a matter of whether people are in a position to take [and complete payment for] that order, and the evidence in August is that definitely they were.”
The August surge in new-car spending is a stark contrast to CommBank’s automotive spending data for May 2022, which showed a year-on-year decline of 28.3 percent.
Tony Weber, Chief Executive of the Federal Chamber of Automotive Industries, said an increase in shipments of new motor vehicles arrived in August, but acknowledged a portion of those deliveries were possibly fulfilling previous purchases, rather than current or future purchases.
“There’s a fair bit of evidence to support the fact that deliveries are for earlier decisions to purchase rather than current decisions,” Mr Weber said.
Mr Weber said the car industry was hopeful supply of new motor vehicles would “remain buoyant” for the remainder of the year, but noted stock availability would be subject to “when vessels are available to bring product to Australia”.
According to Brian Savage, Chief Operating Officer of the Australian Automotive Dealers Association, stock levels may have improved for some car brands, but still vary greatly across the board.
“Demand has recently softened a little but remains strong overall. On the supply side, it is encouraging to hear that some brands are reporting that they are expecting improvements over the next quarter, although this is not across the board and can vary model by model. and make by make,” Mr Savage told Drive.
“People who are in the market for a new car should speak to their dealer who will be able to give a more accurate estimate of availability depending on make, model and specification that the customer is considering.’
CommBank’s automotive spending data echoes the National Australia Bank’s chief economist who told Drive New-car buyers are unlikely to feel the pinch of interest rate hikes until next year.
“We think they [interest rate rises] will start to have an impact from the end of this year or early in 2023,” NAB Chief Economist Alan Oster said.
“My guess is that, overall, things will get more tricky for consumers in 2023 than at present.”