Weekly economic briefing: Motor vehicle sales and the intersection of urbanisation and financing costs

The Weekly Economic Briefing is written by two senior Deloitte Economists, David Rumbens from Deloitte Access Economics in Australia and Ian Stewart Deloitte’s Chief Economist in the UK. They provide a personal view on topical financial and economic issues. Subscribe to receive the Weekly Economic Briefing in your inbox!

In this week’s blog:

Australian economic briefing
UK economic briefing
International economic briefing

Australian economic briefing by David Rumbens

This section of the briefing provides a snapshot of key economic data and issues of relevance to Australia.

Motor vehicle sales and the intersection of urbanisation and financing costs

It’s a little too early to call the decline of the motor vehicle, but have low interest rates been masking a trend away from spending on cars?

The latest ABS new motor vehicle sales data for Australia show that sales were 3.9% higher over the June quarter, and 3.2% higher compared to the June quarter a year earlier. As the chart below shows, this reflects a significant improvement after a period of falling sales earlier in the financial year, and a slowdown during 2015-16. Overall, there were 1,178,046 motor vehicles sold in 2016‑17, just above the 1,172,326 sold in 2015‑16.

Sales were strongest for the ‘other vehicles’ (e.g. trucks, buses, defence vehicles) and SUVs (sports utility vehicles) category, while sales volumes of passenger vehicles have been declining in annual terms since 2013.  Partly, there has been a simple switch, with SUVs increasing in popularity over time, and outnumbering passenger vehicle sales in the months of March and June this year.

Source: ABS Cat No. 9314.0

The last four years have seen weaker than usual motor vehicle sales growth.  There were 1,142,374 vehicles sold in 2012‑13.  This means that annual growth in new car sales has averaged only 0.8% since then, representing a decline in the number of new car sales per head of population.  There were 49.7 new motor vehicles sold for every 1,000 Australians in 2012‑13. This fell to a low of 47.7 in 2014‑15, and has since increased to 48.2 in 2016‑17.

The downturn in motor vehicle sales per capita has come at a time when economic conditions might have been expected to have provided a tail wind. Interest rates have declined since 2012, and normally this would provide a boost to a credit sensitive component of spending such as motor vehicles. Which poses the question: how will motor vehicle sales fare when interest rates do start to head up to more normal levels? And with a high share of the growth of our housing stock being in the inner cities of Sydney, Melbourne and Brisbane, is a move away from motor vehicles sales a symptom of our evolving urban form?

Detailed consumer spending data presents a similar picture of changing preferences. Consumer spending on the purchase value of motor vehicles as a share of total spending was 2.2% in 2012‑13, but this had fallen to an average of 1.8% for data reported in 2016-17. Looking further back, there has been an even more marked decline from an average of 3.2% (share of spending on motor vehicles) over the 2000s, or 3.7% across the decade prior to that.

Of note, the latest ABS motor vehicle census data shows that motorcycles have also become more popular, and now account for 4.5% of all motor vehicles, up from 2.7% two decades earlier. The growing popularity of motorcycles as a form of transport may also reflect the densification of our major cities and the increasing scarcity of parking spots in inner city areas. It should be noted that while motorcycles are included in total fleet data, they are not included in the new vehicle sales data.

So what’s on the horizon for motor vehicle sales?

The trend towards greater density in our major cities will continue over time, which may see some further rationalisation of our motor vehicle stock. The cost of financing is also likely to be less supportive when it comes to credit sensitive motor vehicle purchases over time.

That said, nothing beats income growth as a driver of spending, and the much stronger jobs growth which we have seen since February will provide some support to motor vehicle sales in the short term.

Further, the final closure of Australia’s car assembly industry later this year means that from next year all new cars purchased in Australia will be imported. This will make the value of the Australian dollar a key factor for all new vehicle prices, since motor vehicle retailers are mostly dealing with foreign currency.

The stronger Australian dollar will provide the sector with a boost through cheaper prices. But this doesn’t happen straight away – it usually takes a few months for the exchange rate effect to flow through to consumer prices. Given this, the recent increase in the Australian dollar (up around 8 US cents over the last six months to  buying around 80 US cents) will provide positive support for vehicle sales for some months.

For more information on the Australian brief, please contact author, David Rumbens.


UK economic briefing by Ian Stewart

A personal view from Ian Stewart, Deloitte’s Chief Economist in the UK. Subscribe to and view previous Monday Briefings at: http://blogs.deloitte.co.uk/mondaybriefing/

Holiday Edition

With the summer break upon us here are ten facts to sprinkle into your holiday conversations.

  1. There is a common misconception that for a Brit making a card transaction overseas in sterling is cheaper than using the local currency. Martin Lewis of moneysavingexpert.com reports that, in fact, it is almost always better to make card transactions in the local currency. Even if the currency conversion provider waives its commission it usually uses an exchange rate with a significant mark-up over that offered by Visa/MasterCard for sterling transactions.
  2. Airport transfer website Hoppa’s provides a useful list of the world’s cheapest holiday destinations. Hoppa measures the cost of night’s stay in a hotel, a meal for two and a bottle of wine, a 3km taxi ride, a coffee, a cocktail and a beer across 84 cities. Sofia in Bulgaria comes out as the cheapest holiday spot at just £38.21 for this basket of goods and services, followed by Cairo (£39.09). Big falls in the value of the Bulgarian Lev and the Egyptian Pound have reduced costs for visitors to these countries.
  3. The cheapest place in the world to buy a McDonalds Big Mac is Ukraine according to The Economist’s Big Mac index. The index compares the US dollar price of Big Macs across countries in order to assess how under/overvalued the local currency is against the US dollar. We have converted these prices into British pounds. Last month British tourists in Ukraine could buy a Big Mac for £1.05 compared to an average UK price of £3.15 and a US price of £4.07.
  4. A global economic upturn and the depreciation of sterling has led to a surge of foreign visitors to the UK. Visitor numbers have risen 10% in the last two years and in 2016 more overseas visitors – some 37.3 million people – came to the UK than at any time since records began in 1961. The British Museum remains the most popular UK attraction for the tenth year running with 6.4 million visits in 2016. Following a £260m extension of the Tate Modern building by architects Herzog and de Meuron London’s modern art museum saw the biggest rise in visitors, up 24% from 2015 to 5.8 million.
  5. The UK is popular shopping destination for Chinese visitors. The average Chinese tourist spent £1,972 visiting the UK last year compared to an average spend by US tourist of £971. The discount luxury retail outlet in Bicester Village in Oxfordshire is the second most popular attraction after Buckingham Palace for Chinese visitors. Three out of every four Chinese tourists travel to Bicester while in the UK.
  6. The National Museum of China in Beijing is the most popular in the world, with 7.6m visits in 2016. It replaces the Louvre in Paris, which had bagged the top spot for four consecutive years. The National Air and Space Museum in Washington comes second with 7.5m visits.
  7. A study by business information provider Timetric shows that people from smaller and more affluent countries such as in Scandinavia are more likely to travel abroad than citizens of larger countries. The Norwegians are the world’s most well-travelled people making 2 international trips on average each year. The Finns come second with 1.7 trips on average each year. Swedes, Danes and Canadians make up the top five. Americans take an average of 0.2 foreign trips each year and the British 0.9.
  8. Austria, Greece and France give their employees the most generous statutory minimum level of holiday entitlement at 25 days according to a study by Mercer. However, Austrians enjoy the most generous entitlement when the additional 13 days of public holiday are included. By contrast, Filipinos are entitled to a statutory minimum of just 5 days in holidays. UK employees get a minimum of 20 days. US employees do not have a mandatory holiday entitlement but typically take around 15 days.
  9. Securing visas can be a time-consuming part of holiday planning, though less so for Germans. A study by citizenship consulting firm Henley & Partners shows that German passport holders can travel without a visa to 176 out of 218 possible travel destinations, the highest in the world. Sweden ranks second with 175 visa-free destinations. Denmark, Finland, Italy, Spain and the US came third with 174 destinations. The UK ranked fourth with 173 visa-free destinations.
  10. France is the world’s most popular country for international tourist visits (84.5m individual visits during 2015), according to the latest World Tourism Organisation statistics. US, Spain, China and Italy are the next four most attractive destinations for international tourists.

PS – We have previously highlighted the rising number of young Americans who appear to given up on working or looking for work, effectively withdrawing from the jobs market. A report published last week by the Learning and Work Institute think tank suggested that something similar could be starting to  happen in the UK. The report shows that the percentage of British 16-24-year-olds who were not in employment, education or training (NEETs) for a year or more has risen to 11.2% in the first quarter of this year, from 9.8% a year ago. This has happened even as unemployment has fallen and employment rates have risen to record levels.


The FTSE 100 ended the week up 2.0% at 7,512.

Markets rallied on positive global economic data and further signs of strength in the US jobs market, although former Federal Reserve Chairman Alan Greenspan issued a stark warning that the US bond market is on the verge of collapse that will also hit stock prices, because the period of “abnormally low” interest rates is about to end.

International economic briefing by Ian Stewart

Economics and business

  • The US economy added a better-than-expected 209,000 jobs in July, with the unemployment rate falling to 4.3% matching a 16 year low struck in May
  • The Dow Jones Industrial Average stock index hit a new record high, boosted by a surge in the value of Apple, the largest listed US company
  • UK manufacturing activity grew at a faster-than-expected rate in July, driven by “near record” growth in new export orders and foreign demand
  • The National Institute of Economic and Social Research (NIESR) raised its forecast for growth in the UK next year, predicting a surge in exports
  • NIESR also predicted that accelerating growth and rising wages would convince the Bank of England to raise interest rates in 2018
  • New car sales in the UK fell for the fourth month in a row in July, as weakening consumer confidence continued to exert pressure on the sector
  • Ratings agency Moody’s cut its outlook on UK consumer-related debt collateral – consumer loans packaged up and sold on as bonds – warning that higher inflation, weak wage growth and rising indebtedness leave lower-income earners exposed
  • The euro area economy grew at a quarterly rate of 0.6% in Q2, its fastest pace in over six years, with the French and Spanish economies hiring at their fastest pace since 2000
  • German carmaker BMW announced a 9.2% rise in pre-tax profits in Q2, driven by record car sales and continued strong growth in China
  • The FT reports how a focus on balanced budgets meant that German public investment fell from nearly 5% of GDP in 1970 to an all-time low of 1.9% in 2005, stabilising at around 2% since then
  • Consumer confidence in emerging economies has risen to its highest level since 1993, according to Pictet Asset Management
  • The US issued sanctions against Venezuelan president Nicolás Maduro, describing him as a “dictator” after contentious elections in which turnout numbers were allegedly falsified
  • Russian Prime Minister Dmitry Medvedev described fresh US sanctions as “the declaration of a full-fledged trade war” against Moscow
  • A panel set up to tackle the US opioid crisis recommended that President Trump declare a national emergency “with approximately 142 Americans dying every day…a death toll equal to 9/11 every three weeks”
  • The FT suggests traditional carmakers are at a distinct manufacturing disadvantage compared to makers of electric cars, with a Tesla 3 having between 6-7,000 parts while a traditional vehicle has 30,000

Brexit and European politics

  • Brexit was by far the most important issue to UK voters ahead of this May’s General Election, according to data from the British Election Survey (BES)
  • Results from the BES also suggest British voters saw the Labour Party as the party that could deliver a “soft” Brexit, with Jeremy Corbyn’s party winning over “large numbers” of Remain voters from other parties
  • Deutsche Bank signed a lease for a new London headquarters, confirming its commitment to the capital despite plans to also move some staff to Frankfurt
  • More than 60% of Brexit voters believe that “serious” damage to the UK economy would be a price worth paying to achieve Brexit, according to YouGov
  • The Bank of England said it expects investment in the UK economy to be 20 percentage points lower in 2020 than it had forecast before the Brexit vote
  • Conservative MP Nicky Morgan, newly elected chair of the Treasury select committee, wrote to the Bank of England to request comprehensive details of the City’s readiness for a hard Brexit
  • The select committee also asked for the Bank’s views “on the desirability and design of a transitional arrangement with the EU, to provide more time to negotiate and prepare for a new UK-EU economic relationship.”
  • The FT reports that Mitsubishi EFJ Financial Group of Japan plans to make Amsterdam its new EU base
  • The body representing local UK councils, the Local Government Association called for the government to replace £8.4bn of EU funding

And finally…

  • A group of 12 prisoners in Alabama, US, escaped prison after using peanut butter to disguise door markings and fool staff into opening an outside door for them – smooth criminals

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