The end of the calendar year and the start of a new one is a good time to buy a new car because dealers are trying to clear old stock.
But the bargains are likely to be sharper this time around because new-car sales are on track to hit the brakes for the ninth month in a row, dealers are overstocked, and the forecast for next year is gloomy.
A range of conditions are conspiring against the industry, including stricter credit requirements introduced in November (which means more finance deals are not getting approved), economic uncertainty thanks to the upcoming Federal election due in May at the latest, and a drop in house prices that has dented the net worth of the biggest drivers of new-car sales: people aged over 50.
Figures from the Federal Chamber of Automotive Industries, which reports the number of new cars sold based on data supplied by dealers and manufacturers – not on actual registrations – show Australia has had three record years in a row.
Indeed, given that five of the last six years have been sales records, do we need a break from gorging ourselves on new cars?
The Top Three automotive brands in Australia – Toyota, Mazda and Hyundai – are making similar forecasts, which means dealers will be pushing even harder to move metal in the coming months.
It takes six to 12 months to slow down factory orders, giving buyers the upper hand at the start of the year.
However, once the industry “turns off the tap” and stock levels begin to reflect the dip in demand, dealers will be less desperate to rip up their profit margin.
Every day a car sits in stock it costs a dealer money, which is why they like to keep inventory lean.
But the 7.4 per cent drop in new-car sales in November, following the 5.3 per cent slowdown in October and the 5.5 per cent decline in September, means most dealers are choking on excess cars.
Year-to-date sales are down by just 1.9 per cent, however that’s because sales in the first few months of the year were up by between 3 and 6 per cent, before hitting the brakes from April onwards.
The chief executive of the Australian Automotive Dealer Association (AADA), David Blackhall, says: “It’s a tough forecast to make because there are three major factors that make it a very cloudy crystal ball.
“The first is the unintended consequence of the banking Royal Commission, which has reduced appetite for risk in the financial area, so getting people set on finance is now much more difficult.
“The second thing is … the effect of reductions in people’s house prices. People think to themselves ‘I don’t feel as wealthy any more, I’m not going to buy a new car’.
“The third impact, which really is the wild card, is the election. History shows people just don’t get in a buying mood. With an election date probably in May, you’ve got a whole almost first half of next year of very muted demand.”
What the Big Three say
Toyota has weathered the downturn well, with a slight increase in sales of 0.8 per cent November year-to-date in market that’s down by 1.9 per cent.
If Toyota finishes 2018 in positive territory, it will be its fourth year in a row of growth.
The sales and marketing boss for Toyota Australia, Sean Hanley, says: “We expect that the market size will be similar to that of 2018. In our market forecast planning, we understand there are a number of external influences, such as a Federal Election and changes to lending practices that may have some impact on the overall market size.
“However, on the back of low unemployment and a solid product line up, which will be further strengthened by new models in 2019 … we remain positive and optimistic about our sales plans aligned to continued market share growth.”
Mazda is on track to post its second year in a row of sales declines, down 3.8 per cent November year-to-date.
Mazda Australia managing director Vinesh Bhindi says: “The decline is due to a number of factors that are impacting all brands such as a tightening of credit and the ability of marginal buyers to secure loans (and) the decline in house prices, particularly in Melbourne and Sydney.”
“But on the flipside, the fundamentals of the economy still remain strong,” said Mr Bhindi. “Private and business consumption is on the increase. We have the fastest full-time employment growth in 10 years. Business confidence is at an all-time high and consumer confidence is on the up. And people are spending more of their savings, even if real wages are not growing.”
Hyundai is well known for its drive-away deals – and the discounts are sharp over the next few months – but the savings will eventually become slimmer as the company winds back how many cars it imports next year.
Hyundai is on track to post its third year in a row of sales declines, down 2.7 per cent November year-to-date.
The chief operating officer of Hyundai Australia, Scott Grant, predicts sales in 2019 will dip 3 to 4 per cent but insists “it won’t be a disaster”.
“I think there’s a rebalancing after three years of continuous growth,” said Mr Grant. “We will follow the market … balancing supply and demand maybe a bit better than we were in the past. I think we’ve been quite aggressive in the past (with) moving cars into the market …. but now there’s a balance. Too much is not good for anybody, too little is too tight.”
Mr Grant said while the economy is strong, elections historically see a slowdown in sales as it introduces uncertainty in the minds of buyers.
“There is as much uncertainty and dismay around the general populous than there’s ever been. There’s always a hesitation and a nervousness leading up to (an election).
“None of that is a disaster and I don’t see any major tipping point where we’re going to collapse.”