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Economics | July 8, 2020

Luxury vehicle sales at record highs Economic perspectives Luxury vehicle sales: Sales of new luxury vehicles hit record highs last month. The CommSec luxury

vehicle sales index, a sample of 17 luxury marques, shows that sales totalled 12,235 units in June, double the level of May and up from the 11-year low set in April.

CommSec tracks luxury vehicle sales on a monthly basis. In past years there have been close links between new vehicle sales and home prices and between luxury vehicle sales and the broader car market.

New and used vehicles are components of household wealth. Further, changes in other assets like homes and shares can affect demand for cars.

What does it mean In April 2020 – at the peak of the lockdown – sales of new vehicles hit 11-year lows. It was a similar story at the

top end of the market. The CommSec luxury vehicle index showed that 3,807 vehicles were sold in April – the lowest result since April 2009.

Fast forward to June 2020, and the data shows that 110,234 new vehicles were sold, down 6.4 per cent on June 2019. But while vehicle sales were down on a year ago, the result was actually the strongest since the COVID-19 crisis began. Sales of sports utility vehicles (SUVs or 4-week drive vehicles) were only down 2.9 per cent over the year. And notably sales of light and heavy commercial vehicles were up 9.3 per cent on June 2019.

The latest data shows that the upper-end of the new vehicle market did even better. The CommSec measure of 17 luxury marques shows that a record 12,235 vehicles were sold in June.

So what can we put this down to? Analysts cite the influence of the extended instant asset write off scheme on vehicle sales in June. Low interest rates, competitive ‘End of Financial Year’ offerings by dealers, rebounding share prices, easing of virus restrictions and optimism on the economy all may have played a role in lifting luxury vehicle sales. In fact a record 12.9 per cent of all combined new passenger and sports utility vehicle sales in June were luxury vehicles.

Certainly, a number of factors affect the vehicle purchase decision such as the increasing use of vehicles for both business and personal purposes.

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Economic Insights. Luxury vehicle sales at record highs

Another factor is ‘wealth’. A Reserve Bank study “identifies a positive and stable relationship between household wealth and consumption, largely reflecting changes in spending on motor vehicles, durable goods and other discretionary spending.”

In recent times, luxury vehicle sales have been tracking home prices closely. From July 2019 to February 2020 the CommSec Luxury vehicle index rose – exactly matching the gains in home prices. Luxury vehicle sales fell 2.0 per cent in March and 2.9 per cent in April, ahead of declines in national home prices in May and June.

Luxury vehicle sales lifted 4.1 per cent in June. But so far in July home prices have been flat, rather than higher or lower. The question is whether recent news of the Victorian lockdowns has an impact on broader consumer spending trends in coming months.

CommSec Luxury Vehicle index

To get a gauge on the luxury vehicle market, CommSec tracks the sales of 17 luxury marques: Aston Martin, Audi, BMW, Bentley, Ferrari, Hummer, Jaguar, Lamborghini, Lexus, Lotus, McLaren, Maserati, Maybach, Mercedes-Benz, Morgan, Porsche and Rolls Royce.

Sales of luxury marques hit peak levels of 106,658 units in the year to December 2016. But from there it was all downhill. In the year to June 2019, rolling annual luxury vehicle sales were down 13.1 per cent on a year earlier, hitting 4-year lows.

The recovery started in July 2019, with rolling annual sales lifting for the first time in two years. And the rolling annual measure consistently rose in the eight months through to February 2020.

But then COVID-19 hit. Rolling annual sales fell 2 per cent in March, fell another 2.9 per cent in April and then fell 1.7 per cent in May. In May the annual total of luxury vehicle sales hit a 5-year low of 83,150 units.

In the month of April 2020 alone, luxury vehicle sales stood at an 11-year low of 3,807, before rebounding to 6,065 in May and then to a record high of 12,235 units in June.

According to the VFACTS data from the Federal Chamber of Automotive Industries, sales of Lexus vehicles hit record highs in June (1,560 units) while record highs were also posted by BMW (3,307) and Mercedes Benz (4,437).

In rolling annual terms, sales of both Ferrari and Porsche were higher than a year earlier in the year to June.

One other trend worth noting is the fact that luxury vehicles have continued to pick up market share. In fact the index of luxury vehicle sales tracked by CommSec now represents a record 15.9 per cent of all sales of new passenger vehicles and SUVs.

Recent movement in home prices

The CoreLogic Home Value index for five capital cities fell by 0.5 per cent in May before falling a further 0.9 per cent in June. So far in July, home prices have eased just 0.1 per cent with Sydney prices down 0.1 per cent and Melbourne down 0.2 per cent.

What is the importance of the economic data?

The Federal Chamber of Automotive Industries releases regular data on new vehicle and motor cycle sales. Cars and bikes are key purchases for consumers, farmers and businesses.

CommSec tracks luxury vehicle sales on a monthly basis. Over past years there have been close links between new vehicle sales and home prices and between luxury vehicle sales and the broader car market.

The CoreLogic Hedonic Australian Home Value Index is based on Australia’s biggest property database. Unlike the ABS Index, which excludes terraces, semi-detached homes and apartments, the CoreLogic Hedonic

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Economic Insights. Luxury vehicle sales at record highs

Index includes all properties. Home prices are an important driver of wealth and spending.

What are the implications for interest rates and investors? The Reserve Bank has indicated that economic recovery

over the next few years is likely to be “bumpy”. That term certainly sums up recent movements in new vehicle sales, home prices, job vacancies and retail sales.

While luxury vehicle sales bounced higher in June, the question is whether this was merely a temporary situation reflecting end-financial year sales and/or the influence of the Federal Government’s asset write off provisions.

In other words, the lift in new vehicle sales, may not convert to higher home prices.

Still, latest data shows that home prices flattened in July, rather than continue to fall. Clearly it is a trend worth watching given the fresh lockdowns being applied in Victoria.

Luxury vehicle sales now represent a record share of the new vehicle market. There could be a number of reasons for this such as record wealth pre-COVID-19, relative pricing, perceived value for money and/or greater use of vehicles for business as well as personal use.

The recent strength in luxury vehicle sales may not be sustainable if unemployment rates stay higher for longer and/or there is a new bout of sharemarket volatility caused by ‘second wave’ COVID-19 effects.

Craig James, Chief Economist, CommSec Twitter: @CommSec