After three decades of record low prices and affordability, Australia’s top-selling cars are on the brink of becoming more expensive.
Car companies are warning dealers they can no longer absorb the cost of unfavourable exchange rates.
They have been told prices of popular models could rise by between $500 and $1000 – and discounts will be not as generous as they have been in the recent past.
Over the past two years, the value of the Australian dollar has dropped by more than 18 per cent compared to the Thai Baht and by more than 15 per cent versus the Japanese Yen.
Australia’s two largest sources of new motor vehicles are Japan (31.4 per cent of all sales last year) and Thailand (25.5 per cent) ahead of South Korea (14.1 per cent), and Europe (12.3 per cent).
Although they wear Japanese and US badges, most utes sold in Australia – including the Toyota HiLux and Ford Ranger, the nation's two top-selling vehicles outright for the past three years in a row – are made in Thailand.
The next most popular categories of vehicles – small cars and SUVs that include popular models such as the Toyota Corolla and Mazda 3 hatchbacks, and Mazda CX-5, Mitsubishi ASX, Subaru Forester, Honda CR-V and Toyota RAV4 soft-roaders – are predominantly made in Japan or Thailand, meaning they too are likely to be hit with price rises at some point this year.
Most car companies buy foreign currency up to 12 months in advance to avoid exchange rate fluctuations, but they are now reaching the end of their access to “hedged” funds, which locks in exchange rates over a set period.
It means the cost of cars made in Japan or Thailand will likely be cheapest from January to March, before prices start to climb as 2020-built models begin to arrive.
Dealers from multiple mainstream brands have been told prices will likely rise after the end of the Japanese financial year – March – which is historically the second biggest month of the year for new-car sales behind June.
Popular Korean brands Hyundai and Kia are expected to remain largely unaffected, given the Australian dollar has only dipped by 6 per cent to the South Korean Won over the past two years.
The Australian dollar has also taken a big dive against the US dollar (down by 15 per cent over the past two years), however only 3.9 per cent of new cars sold locally last year were sourced from North America.
The Australian dollar has fallen by 8.7 per cent compared to the UK pound over the past two years but Britain only represents 2.6 per cent of new cars sold locally.
European luxury cars are expected to largely avoid currency-driven price rises for the time being, because the value of the Australian dollar to the Euro has only dipped by 4.6 per cent over two years, and currency changes of this scale are largely absorbed by more generous profit margins.
The Federal Chamber of Automotive Industries (FCAI) says currency is just one of the reasons behind the slowdown in new-car sales. The 2019 tally was the lowest in eight years, following the longest slump since the Global Financial Crisis of a decade ago.
“The FCAI has spoken at length about the factors behind sluggish sales in the Australian market," said FCAI chief executive Tony Weber. "These include environmental factors such as drought, flood and bushfire, restricted (financial) lending practices, economic uncertainty, and movement of exchange rates. All these factors are influencing new vehicle sales in Australia."
CommSec chief economist Craig James told CarAdvice: "In terms of the outlook for the Aussie dollar, our general expectation is that it will stay at around 68 and 69 cents to the US dollar for some time yet. We don't expect it to change too much, although of course that may be reassessed once the China and US trade deal goes through."
Why the falling Australian dollar could hit new-car prices
Australian dollar versus Thai Baht:
- January 2018: 25.5
- January 2019: 23.0
- January 2020: 20.7
Down 18.8 per cent over two years
Australian dollar versus Japanese Yen:
- January 2018: 88.8
- January 2019: 78.0
- January 2020: 75.0
Down 15.5 per cent over two years
Australian dollar versus US Dollar:
- January 2018: 80
- January 2019: 72
- January 2020: 68
Down 15.0 per cent over two years
Australian dollar versus British Pounds:
- January 2018: 0.57
- January 2019: 0.56
- January 2020: 0.52
Down 8.7 per cent over two years
Australian dollar versus South Korean Won:
- January 2018: 846
- January 2019: 809
- January 2020: 796
Down 5.9 per cent over two years
Australian dollar versus the Euro:
- January 2018: 0.65
- January 2019: 0.63
- January 2020: 0.62
Down 4.6 per cent over two years
Source: XE.com, figures have been rounded.