Better signs ahead for Aussie car dealers
New vehicle sales; Manufacturing; Services
New vehicle sales: In December, 84,239 new vehicles were sold, down by 3.8 per cent over the year. In calendar 2019, sales of new vehicles totalled 1,062,867 units, down 7.8 per cent on a year ago. In 2019, SUVs accounted for a record 60.5 per cent of combined SUV and passenger vehicle sales.
Services sector: The ‘final’ CBA/IHS Markit Services Purchasing Managers’ Index rose from 49.7 points to 49.8 points in December. Any reading below 50 indicates contraction in activity.
Manufacturing sector: The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from a 3-year low of 48.1 points to 48.3 points in December. Any reading below 50 indicates contraction in activity.
The vehicle sales data provides guidance on consumer spending as well as conditions for the Autos and Components sector of the sharemarket. The manufacturing data provides guidance for companies in the Industrials sector. The services purchasing managers index provides guidance on conditions in retailing, financial services and the services sector more broadly.
What does it all mean?
• There are signs of a bottoming in new vehicle sales. Annual vehicle sales to November were down by 8.8 per cent and the annual decline improved to 7.8 per cent in December. In fact sales of sports utility vehicles in the December month were actually up by 5.9 per cent on a year ago – the biggest annual gain in 14 months.
• On the basis of a pickup in luxury vehicle sales, CommSec has been flagging a broader pick-up in new vehicle sales for the past four months. In the past, a pickup in sales at the top end of the market has flowed through to the broader market. It is hoped that a similar relationship can develop over 2020.
• Higher home prices, lower interest rates and competitive pricing have been serving to support new vehicle sales.
• The positive news is that December sales of sports utility vehicles were higher than a year ago. In fact NSW joined Tasmania with vehicle sales in December up on a year ago.
• The latest AiGroup manufacturing survey echoes the results from the CBA survey. Manufacturing conditions were soft at the end of 2019 in line with manufacturing sectors across the globe. But notably, there has been good news recently on the main negative driver of global manufacturing conditions – the US-China trade dispute. Signing of a ‘Phase One’ trade deal between the two countries is set for January 15. Hopefully an easing of trade tensions will lead to stronger global economic activity ahead.
• As was indicated in the CBA manufacturing survey, survey panellists in the services sector are more hopeful that operating conditions will improve over the next year.
What do the figures show?
New vehicle sales
• The Federal Chamber of Automotive Industries reported: “The December 2019 market of 84,239 new vehicle sales is a decrease of 3,289 vehicle sales or -3.8 per cent on December 2018 (87,528) vehicle sales. December 2019 had the same number of selling days (24.0) as December 2018 and this resulted in a decrease of 137 vehicle sales per day.”
• “The Passenger Vehicle Market is down by 4,569 vehicle sales (-16.9 per cent) over the same month last year; the Sports Utility Market is up by 2,232 vehicle sales (5.9 per cent); the Light Commercial Market is down by 746 vehicle sales (-3.8 per cent); and the Heavy Commercial Vehicle Market is down by 206 vehicle sales (-6.0 per cent) versus December 2018.”
• “The Toyota HiLux again claimed the title of number one selling vehicle in 2019 across all categories, with 47,649 sales. The HiLux was followed by the Ford Ranger, again number two in the market with 40,960 sales, followed by the Toyota Corolla (30,468), the Hyundai i30 (28,378) and the Mitsubishi Triton (25,819).”
• “Across the brands, Toyota led the market in 2019 with 19.4 per cent market share, followed by Mazda (9.2 per cent), Hyundai (8.1 per cent), Mitsubishi (7.8 per cent) and Ford (6.0 per cent).”
• Sales across states and territories over the year to December: NSW (up 1.4 per cent); Victoria (down 5.7 per cent); Queensland (down 3.9 per cent); South Australia (down 18.3 per cent); Western Australia (down 2.0 per cent); Tasmania (up 7.0 per cent); Northern Territory (down 8.0 per cent); ACT (down 16.5 per cent).
• The biggest selling vehicle in December was the Toyota Hi-Lux (3,917) from Ford Ranger (3,348) and the Toyota Corolla (2,777).
• The rolling annual total of new vehicle sales in 2019 was 1,062,867, down 7.8 per cent on the year. It was the lowest calendar year result since 2011. Passenger car sales fell by 16.5 per cent on the year with SUVs down 2.4 per cent and “other vehicles” down 6.0 per cent.
• In 2019, SUVs accounted for a record 60.5 per cent of combined SUV and passenger vehicle sales.
Services Purchasing Managers’ index
• The ‘final’ CBA/IHS Markit Manufacturing Purchasing Managers’ Index rose from 49.7 points to 49.8 points in December (the preliminary December reading was 49.5). Any reading below 50 indicates contraction in activity.
• According to CBA/IHS Markit, “Drought-related disruptions and subdued sales growth continued to dampen services output, according to survey respondents. The decrease in services activity contributed to the first fall in employment for five months amid reports of company restructuring and layoffs.”
• “…longer-term prospects remained positive. The Future Output Index, a measure of sentiment, registered well above the no-change 50.0 level as just over half of panellists expect higher activity over the next 12 months. Optimism was mainly connected to expectations of an improved economic environment, new product launches, marketing strategies, planned business expansions and better weather conditions.”
Manufacturing Purchasing Managers’ Index
• The Australian Industry Group (AiGroup) Performance of Manufacturing Index rose from a 3-year low of 48.1 points to 48.3 points in December. Any reading below 50 indicates contraction.
• According to AiGroup, “With the exception of the food & beverages sector, the end of 2019 proved challenging for Australian manufacturing. All other sectors were either stable or contracted again in December. Drought and adverse weather conditions continues to detract from demand for manufacturing businesses in rural areas, particularly those selling metal products or machinery & equipment to the agricultural sector. Those selling products to the construction sector are also reporting reduced demand, a result of the downturn in residential construction activity and weather-related disruption.”
What is the importance of the economic data?
• The Federal Chamber of Automotive Industries releases data for new vehicle sales on the third business day of the month. The figures highlight the strength of consumer spending as well as conditions facing auto & components companies.
• The AiGroup and CBA Purchasing Manager indexes (PMIs) for services and manufacturing are released each month. The Australian PMIs are the local equivalents of similar indexes released for other countries. The PMIs are amongst timeliest economic indicators released in Australia. The PMIs are useful not just in showing how the sectors are performing but in providing some sense about where they are heading. The key ‘forward looking’ components are orders and employment.
What are the implications for interest rates and investors?
• New vehicle sales are still dropping in annual terms, but the rate of decline is reducing. There are more positive signs for businesses dependent on vehicle sales. Higher home prices boost asset values of home owners, and in turn, their capacity to fund a purchase of a new vehicle. Interest rates will stay low for an extended period. But a softer Aussie dollar restrains the ability of car dealers to maintain competitive prices.
• Outlook statements from both the CBA manufacturing and services sector reports were positive. The question now is whether the optimism on US-China trade offsets the uncertain geopolitical environment in the Middle East.
• Commonwealth Bank Group economists have pencilled in another rate cut in February 2020.
Published by Craig James, Chief Economist, CommSec