Cars

Australians still love buying new cars, even when wage growth is low | Greg Jericho | Australia news

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Australians remain more than ever a nation of car lovers, the latest census of car ownership released by the Australian Bureau of Statistics reveals. The latest snapshot comes at a time where a record number of new cars are being sold, and suggests that consumers remain willing to splurge on a new car – even in light of record low wages growth.

Perhaps the silliest thing about Joe Hockey’s comment in 2014 that “the poorest people either don’t have cars or actually don’t drive very far in many cases” is not that it revealed his understanding of economics lacked rigour, but that it showed him to be very naive about Australians’ love of cars.

In the latest car census covering January this year, the ABS has revealed that there are 775 motor vehicles per 1,000 people – up from 770 last year:


That level would have us in the top 10 motor vehicle loving nations in the world.

Overwhelmingly of course, most vehicles are of the passenger vehicle type. Currently there are 14m passenger vehicles in Australia, light commercial vehicles come in second with a touch over three million, while motorcycles a distant third with just under 850,000:


The spread of cars across Australia is uneven. People in New South Wales are much less likely to own a car than those in Tasmania and South Australia. In South Australia and Tasmania, there are respectively 628 and 624 passenger vehicles per 1,000 people, compared to just 544 in New South Wales.

And if you love motorbikes, you should head west to be among friends. There are 49 motorbikes per 1,000 people in Western Australia – well above the national average of 35.

The census also reveals that our passenger vehicles are somewhat aged, but overall not getting more old.

The average age of passenger vehicles across Australia is 9.8 years – the same it has been since 2012. In some states however, the average age has been increasing, with both Tasmania and South Australia consistently having older cars than in the rest of the nation:


In both those states, more than a quarter of the passenger vehicles were at least 16 years old:


The age of cars is an important aspect to measure because while the number of cars can be reflective of non-economic aspects, such as public transport availability and population density (less need to have a car if you live in an urban area), the age of cars can be an indicator that people are less willing to buy a new one.

And the sales of new cars is a key economic indicator – and in the past four years, a very accurate one.

The theory goes that if the economy is growing strongly, and people feel secure in their employment, then they will be more likely to buy a new car.

That makes sense: it is one of the biggest purchases outside of a home that people make.

In the past four years, the correlation between employment growth and the growth of new cars has almost been perfect. Strong employment growth has seen strong motor vehicle growth:


Oddly however, such a relationship is somewhat unusual. If we look at employment and new car sales growth since 1995, there is barely any relationship between the two:


That doesn’t mean no relationship exists, more that there can be multiple factors affecting people’s decision to buy a car.

One thing as well is that the nature of the car market has changed over time. In June for the first time ever, there were more SUVs sold than passenger vehicles:


The value of cars has also drastically changed over the past 20 years. With the reduction of tariffs, the price of cars in Australia has barely risen since 1995:


Consider that in 1995, a new Toyota Camry was advertised for $23,910, and these days a 2017 model Camry is being advertised for $23,990. That is an $80 increase over a period where the average weekly full-time wage has gone from $647 a week to $1,533. In effect, the cost of the car has gone from 37 weeks work to 16.

One other big change has been that soon car sales will no longer be an indicator of the Australian production of cars. Where once the car was not just a consumer item but also a sign of economic production, with the closure of Holden and Toyota plants in October, it will become purely a consumable.

That doesn’t mean it is no longer a good indicator of economic health, but it is now perhaps more a direct measure of our consumer confidence than it is economic activity. It also does make it interesting to see which make of cars will perform best over the coming years. Since 2012, Holden and Ford have both suffered, while Toyota – with the locally made Camry – has been the top performer:


The car industry has undergone great changes in the past 20 years and it is perhaps the most visible sign of the changing makeup of our economy away from protected manufacturing.

But regardless of where they are made, it is clear that we love our cars, and right now even in a time of low wage growth, it remains a very good indicator of economic health.

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