Car sales slump as economy hits speed bump and dealers face growing vehicle sharing challenge

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New and used car dealers are feeling the pressure of tough economic conditions.

Traffic is heavy on Sydney’s Parramatta Road, but for the car dealers along the strip, business has been anything but.

Key points:

  • Australian new car sales have posted their biggest annual fall in more than nine years
  • A report forecasts global car sales to fall by four million vehicles in 2019
  • Car sharing services are growing in Australia and can be an alternative to car ownership

Sales of new cars in Australia have fallen for 14 consecutive months, according to the Federal Chamber of Automotive Industries.

That would normally drive a lift in sales for used car dealer Robert Bakhos but he says this time is different.

“We’ve got a workshop at the back and we sub-contract it out to a detailer. He’s generally very, very busy because he services most of the dealers around the local area, but the last couple of weeks, he’s been very quiet,” Mr Bakhos told the ABC.

His dealership has recently experienced slower finance approvals for buyers — something new car dealers are also struggling with.

Australian credit growth slumped to a six-year low in April, with Reserve Bank figures showing personal loans continued to decline in the month.

Negative wealth effect hits car sales

“You’ve got the election, you’ve had a negative impact on lending as a result of the royal commission and you’ve got what I call the negative wealth effect from people’s houses being valued at lower prices,” David Blackhall, the chief executive of the Australian Automotive Dealers Association, said.

It is a cocktail of conditions that has dampened consumer confidence and household spending, and car sales in particular are linked to the housing market.

CommSec tracks sales of 17 high-end brands, from Audi to Mercedes-Benz, against home prices and as one heads south, so does the other.

A chart showing home prices and luxury car sales rising and falling together

It is a link that did not go unnoticed by the Reserve Bank in the lead-up to its first interest rate cut in nearly three years, with governor Philip Lowe noting the wealth effect was highest for spending on motor vehicles and household furnishings.

Camry in a coal mine?

Camry in a coal mine?

Are plunging car sales a harbinger of economic doom or a shock-absorber for more labour-intensive parts of the economy?

“It’s something that’s eminently postponable, so if there’s grey clouds on the horizon people can easily make the decision ‘I’ll run that car lease another six months or another year’, ‘I won’t turnover my ute, I’ll deal with the ute I’ve got’, and so on,” Mr Blackhall said.

More than 1.1 million new vehicles were sold in Australia over the 12 months through May, down 7 per cent on the previous period — which CommSec said was the biggest annual decline in more than nine years.

However, it is not just Australian buyers hitting the brakes — global sales are expected to fall by four million this year, according to a report from the Centre For Automotive Research at Germany’s University of Duisburg-Essen.

The recent report described the current auto market downturn as the biggest in 20 years, spurred by US President Donald Trump’s tariffs and sanctions.

Next generation challenge for car market

In addition to economic conditions, there are other shifts occurring in the market that could prove a speed bump for car sales.

Car sharing is a growing industry in Australia and could be a viable alternative to ownership for inner-city drivers.

A sign showing authorised car share vehicles are allowed to park in a no-parking zone in Surry Hills, Sydney.

Software consultant Anne-Marie Priestley started using a car-sharing service when she moved back to Australia from the UK.

Five years on, it has become a permanent alternative to car ownership, in conjunction with public transport and walking to work.

“I think it’s definitely cheaper not to own a car, once you add up the cost of buying it, insuring it, registration and even the little things, like parking in Sydney costs a fortune,” Ms Priestley said.

“If we’ve got a few extra people, we get a bigger car. If we want to help someone to move, we can rent a van just for an hour, it’s really helpful.”

A woman with her arms crossed standing in front of parked cars.

Ms Priestley owned her first car at the age of 17, but for her sons who are now slightly older than that and can learn to drive on shared cars, the future may be car-less.

“It’s not only the cost, and that definitely is a factor for the younger generation, but I think the environmental benefits will be a factor with them,” she said.

Different car-sharing services have different claims about how many cars their platforms take off the road.

The biggest company in the Australian market, GoGet, says one of its cars can replace 10 private vehicles.

It is another potential threat down the road for an industry already under pressure.

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