How the mining boom affected car sales

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New modelling from the Reserve Bank of Australia (RBA) estimates the mining boom may have boosted new vehicle sales around 30 per cent by 2013 over where they otherwise would have been, and cut prices by more than 15 per cent.

The Effect of the Mining Boom on the Australian Economy has been produced by economists Peter Downes, Kevin Anslow and Peter Tulip, and attempts to estimate the effect of the once-in-a-generation resources boom from a macroeconomic perspective against a baseline map of the economy had the boom not occurred.

It found, among other things, that the boom boosted real per capita household income by 13 per cent over the past decade to 2013, cut projected unemployment by 1.25 percentage points and lowered the price of general imports significantly because of currency appreciation.

In the case of motor vehicles, it found that the boom had driven down the average vehicle cost by about 15 per cent, which combined with higher real household income boosted vehicles sales about 30 per cent greater over this period than they otherwise would have been. It also increased population growth by about 1 per cent, with people drawn from overseas by the prospect of lucrative jobs. More people means more car buyers.


This figure is higher than the rate of growth in durables and other goods, food and communications, and also about three-times greater than the overall increase in total consumption, which grew by 10 per cent, 3 per cent less than overall per capita income, pointing to an increased savings rate.

Essentially, the influx of foreign investment and an influx in demand for Australian commodities — investment spending by the mining sector quadrupled to 8 per cent of GDP over the past decade or so — had the double benefit of making households richer and slashing the price of cars.

This estimated comparative price decrease of 15 per cent affects imported vehicles the most: the influx of foreign money appreciated the Australian Dollar against other currencies (the exchange rate) and thereby boosted our purchasing power for imported goods.

From an economic perspective, the report explains the relative growth in demand for imported cars over the past ten years - a pair of imports, the Mazda3 and Toyota Corolla - now dominate the sales charts, for instance, while demand for luxury cars has spiked. In 2014, as the boom possibly slows, that section of the market remains one of the few areas still growing.


Conversely, the favourable economic climate for imports affected locally-produced goods — Australian-made Holdens, Fords and Toyotas did not benefit from cheaper imports, quite the contrary.

Between 2003 and 2013, sales of Australian-made cars fell from 202,782 units to 118,510 — a period where total vehicles sales grew from 909,811 sales to 1.1 million.

Overall, however, the report found the effect of ‘Dutch Disease’, an economic idea that rapid increases in the economic yield from natural resources correlates with a decline in domestic manufacturing, has so far been comparatively minimal due to extra (short-term) demand for Australian-produced mining components.

Even so, the report estimated that Australia’s manufacturing output was 5 per cent lower over the decade than it otherwise would have been. As demand for manufacturing inputs to mining fades, this figure is estimated to grow to 13 per cent by 2016, though the paper argues this is only accentuated by the boom, not caused by it.

“Manufacturing has been declining as a share of the Australian economy for decades. The mining boom accentuates this trend, but its contribution is small compared to the changes that have come before,” the report stated.