RBA Governor muses; Luxury vehicle sales lift
Economic perspectives

Reserve Bank Governor: Phillip Lowe was involved in panel participation at the 7th Australia-Canada Economic Leadership Forum in Melbourne.

CommSec Luxury vehicle index: The index has risen for the seventh straight month.

A detailed look at regional economic data highlights the variable economic conditions for businesses. Luxury vehicle sales have tracked movements in home prices and led the broader new vehicle market in recent years.

What happened & what does it mean

• Reserve Bank Governor Philip Lowe attended the 7th Australia-Canada Economic Leadership Forum in Melbourne and gave remarks on a panel of speakers. No text of the function is available.

• Lowe reportedly focussed on climate change, investment, coronavirus, as well as the recent sharp lift in borrowing to buy homes. On climate change Lowe said that Australia was already paying a price and that climate change may already be affecting spending and investment decisions. Insurance costs had already been boosted by the effects of climate change. Lowe is quoted as saying that “the economic effects of weather-related events are really profound.”

• On interest rates Lowe was quoted as saying ”We’re going to be in this (low interest) world for a long period of time” adding further that low interest rates could be around “for years, possibly decades.”

• The comments from the Reserve Bank Governor have not furthered our knowledge on the prospects of further rate cuts.

• The CommSec Luxury vehicle index has now risen for seven months, exactly matching the lift in home prices. The wealth effect of higher home prices, the cuts in interest rates and the rise in household asset values have allowed top end buyers to update their rides. The hope is that the trend extends to the broader vehicle market.

• At this stage many car buyers prefer to purchase quality used vehicles rather than new vehicles. Loans to buy cars in December were up 6 per cent on a year ago – the fastest gain in almost three years.

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. And in the year to June 2019, rolling annual luxury vehicle sales were down 19.7 per cent on a year earlier, hitting 4-year lows.

• But in July 2019, rolling annual sales lifted for the first time in two years. And the rolling annual measure has consistently risen in the six months since (seven months total).

• In January 2020 the annual total of luxury vehicle sales rose by 0.1 per cent to 88,473 vehicles. Sales are down 1.9 per cent on a year ago after being down 13.1 per cent in the year to June.

• Annual sales of Lexus were at all-time highs in the year to January and sales of Rolls Royce were just shy of record highs.

• Luxury vehicle sales have now risen for seven straight months, matching the gains in home prices. The hope is that the strength at the top end of new vehicle and housing markets will extend to broader strength for new vehicle sales, home sales and home prices.

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.

What are the implications for interest rates and investors?

• The Reserve Bank will cut rates further if warranted. Much will depend on the housing and labour markets.

• The luxury vehicle index is useful to monitor given historical links with real estate prices and broader trends in passenger car and SUV sales.

Published by Craig James, Chief Economist, CommSec