The first half of 2023 was a strong period for Australian motor vehicle retailers. Data from the Federal Chamber of Automotive Industries (FCAI), who report the number of new vehicle deliveries each month, has seen the number of deliveries rise steadily in 2023 despite the weakening macroeconomic environment.
According to the FCAI, 97,000 new vehicles were delivered in July 2023 – 14.7% higher than in July 2022 and the highest July result ever. This follows 125,000 vehicles being delivered in June, which took total deliveries in the first half of 2023 some 8.2% higher than the first half of 2022.
However, the healthy level of automotive deliveries in 2023 hides an underlying weakness. This data tracks the number of vehicles delivered to consumers, not the number of people making the decision to purchase a new vehicle. This means that 2023 deliveries include 2022 purchases – back when consumers were spending much more and supply chain delays were rife. The average wait time between agreeing to a purchase and receiving delivery of a car ballooned out to over 150 days in the second half of 2022. This means that a significant number of the vehicles delivered in 2023 are based on sales which were agreed last year.
Chart 1: Road vehicle deliveries, and average wait times
Source: FCAI & Pricemycar.com
As supply chains recover and waiting times decrease, sales numbers will no longer be supported by the cushion of large order books.
Given that consumer spending has weakened substantially in 2023, it is very unlikely that sales will remain at this level once backorders are filled. In fact, spending on motor vehicles generally tends to see an exaggerated fall in demand during economic downturns when compared to the economy as a whole. Indeed, Deloitte Access Economics projections suggest that the number of new vehicles being registered may fall for each of the next three quarters.
Supporting this, consumer sentiment on automotive expenditure is weakening. According to Deloitte’s Global State of the Consumer Tracker, this time last year 31% of Australians were planning on buying a vehicle in the next six months. By the start of 2023 this number had fallen to 18%, where it has stayed since. We have also seen a shift in what consumers are purchasing. During the pandemic, as new car deliveries were significantly delayed, the price of used cars shot up in response, reducing the demand for used vehicles. In September 2022, 88% of consumers who wanted to buy a car planned on buying a new vehicle, but as prices in the used car market cooled over the past year, this figure has dropped to 70%.
In addition to falling consumer demand, the recent Federal government changes to the instant asset write off scheme made it much more financially attractive to purchase a commercial vehicle in 2022-23 than 2023-24. This likely brought forward spending on commercial vehicles, which may result in much weaker demand in the second half of 2023. This has already shown up in the data, with a 36% drop in commercial vehicle deliveries from June to July this year.
However, some parts of the motor vehicle market are still growing: the switch to electric vehicles. 2023 has seen an uptick in Battery Electric Vehicles (BEVs), which have made up 7% of new car sales nationally this year, a significant increase from 3.1% in 2022. In Europe, BEVs make up approximately 20% of the market for new cars, indicating there is still very significant scope for this market to grow.
This blog was co-authored by Chris Bates, Graduate Economist at Deloitte Access Economics.
Click on the links below to read our previous Weekly Economic Briefings: