Luxury car sales point to rising confidence

Posted on 10/05/2012  

It seems wealthy car owners have been updating their rides, and consumer confidence is lifting generally. CommSec’s luxury car sales index shows that after a subdued 2011, 126 new luxury cars were sold this March, 22% higher than in March last year.

So why would this show a confidence recovery? Commsec works on the theory that confidence levels recover first at the premium end of the market (in cars and houses) and then flows through to broader economic markets.  

Far from the poverty woes we hear in the news, on average Australians have been getting steadily wealthier, while cars have become more affordable. CommSec noted that “per capita wealth has almost doubled over the past decade, matching a similar increase in the share of luxury car sales”. Back in 1992, luxury cars comprised only 1.3% of the total new vehicle market. Now they comprise 4.7% of all new vehicles purchased, nearing all-time highs.

Early Confidence Signs Among the Public

Meanwhile, more than 2.3 million Aussies are getting ready to buy a new car in the next four years – the highest level in a decade (the average number is 2.072 million), so reported Roy Morgan Research. Logically, the general population doesn’t buy new cars without some confidence, so we must be feeling pretty OK.

And that was before the recent interest rate cut.  Even though a 0.35% (on average) reduction for mortgage holders is not dramatic, it should lighten the debt load. 

Michael Matusik of Matusik Property Insights believes the rebound of the Commsec luxury car index “suggests the housing market may also be poised to recover”. But what about the part the ailing construction sector plays?

New Dwellings Down

New housing starts in Queensland are at decade lows, dropping 12% over the past 12 months. In the State of the States Report, CommSec’s chief economist Craig James said, “The Queensland economy continues to improve but the Achilles' heel is housing, with weak dwelling activity and below normal level of unemployment and population growth”. 

The Reserve Bank recently indicated in their quarterly statement that residential building activity will remain subdued until “lower purchase prices, higher rental yields, population growth and pent-up demand” get Australia building again.

ENDS

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