Car affordability at best levels in 35 years
Car affordability is the best in 35 years. New data reveals that car affordability is at the best levels since 1976. A person on the average wage would need to work for around 30 weeks to purchase a new Holden Commodore Omega auto or Ford Falcon XT auto.
Luxury cars are also more affordable. It’s not just the highest selling cars that have become more affordable. Marques such as the BMW 320i and Porsche Boxster Roadster have now moved closer into reach of more budding car buyers.
What does it all mean?
In part we can thank the stronger Aussie dollar for the fact that car affordability is the best since the 1970s. But tariff reductions, improved technology and competition between car manufacturers have also played a role. And we can’t forget the fact that wages have consistently risen over time.
Aussie consumers are quick to focus on the things that have become more expensive, barely giving a second thought to the goods that have become cheaper or more affordable. But the improved affordability of cars is certainly something that should be celebrated.
Someone earning the average wage has to work for around 30 weeks to buy either a Holden Commodore or Ford Falcon. Rewind just 18 months ago and the metric would have been 32 weeks. And a decade ago the average wage earner would have needed to work around two months longer to purchase the same vehicle. Actually they wouldn’t have been the same vehicles; they would have had far fewer standard features than the current models.
Not only have wages grown at a faster pace than car prices, car buyers today are getting a lot more bang for the buck with features like automatic windows/doors, iPod connectivity, DVD players, GPS, parking sensors/cameras and a multitude of air bags.
Given that buying a car is one of the biggest transactions a family can make, the lower outlay frees up more dollars for other purchases. And then there is the improved level of car safety that is accessible by more and more families.
Certainly the stronger Australian dollar has led to a big improvement in the affordability of imported cars in recent years. And that is in addition to the huge decline in tariff levels since the late 1980s. In 1985 the tariff on imported cars was 57.5 per cent. Compare that with the five per cent tariff that has applied since 2010. The increase in competitiveness of imports has certainly put more pressure on local manufacturers to reduce costs and also keep car prices low.
An $111,000 Porsche Boxster Roadster may not yet have fallen into the reach of the average Aussie, but consider the improvement in affordability over time. A decade ago someone on the average wage would have needed to work for 130 weeks to buy a dream vehicle such as a Porsche Boxster Roadster. Today the same worker would need to work for around 83 weeks. Still a dream perhaps, but the improvement in affordability is another example of Australia’s rising standard of living.
What do the figures show?
CommSec has tracked the prices of new cars that have been published in the NRMA Open Road magazine over time and originally sourced from the authoritative Glass’s Guide. The car prices have been compared with data on average weekly earnings to derive measures of car affordability.
The Australian Automobile Association has tracked vehicle cost and ownership since 1970, providing figures for the cost of a basic Holden sedan over time. CommSec has extended that analysis. In 1976 the price of a new Holden sedan was $4336 and the average male wage (only measure available at the time) was $182.10 a week. At that time the average wage earner would have had to work for around 24 weeks to buy a new Holden car.
Today a Holden Commodore Omega is priced at $39,990 and the average male wage is $1417 a week, meaning it takes around 28 weeks of work on the average wage to buy the vehicle. Using the average wage for all workers the metric is 29.9 weeks of work. The list price of a Ford Falcon XT is put at $40,290, putting the CommSec car affordability measure at 30.1 weeks.
Over the past five years, the CommSec car affordability measure for a Holden Commodore Omega V6 auto has fallen from 33 weeks to 29.9 weeks with the affordability measure for a Ford Falcon XT 4.0L auto sedan down from 34.3 weeks to 30.1 weeks.
While the affordability of two of the top selling cars has improved over time, some imported cars have recorded an even greater improvement. For instance, the CommSec car affordability measure for a BMW 320i 2.0L 6AS sedan has improved from 51.1 weeks to 41.9 weeks over the past five years. And CommSec car affordability measure for a Porsche Boxster 2.9L 7ADCT Roadster has improved from 108.5 weeks to 83.3 weeks.
What are the implications?
A raft of goods has become cheaper or more affordable over time such as cars, TVs, phones, whitegoods like fridges as well as overseas travel. But consumers and the media are fixated on the goods and services that have become more costly. It is important to focus on changes in affordability rather than specific prices of consumer goods and services. And it is also important to focus on a broader basket of goods and services than specific items. The standard of living of Australians has continued to improve, and we expect this will be translated into a gradual improvement in the pace of spending over 2012 as global economic worries recede.
While cars have become more affordable, some will claim that Aussie car buyers should be doing even better. In fact, the list price of a Porsche Boxster in the UK is £37,589 including VAT or around A$56,953 – around half the list price in Australia. Certainly there is a raft of costs associated with importing a car (http://www.customs.gov.au/site/page4371.asp) but the high Aussie dollar and greater use of the internet for shopping and price comparisons will keep pressure on Australian retailers and importers alike.
Published on: Tuesday, January 24, 2012blog comments powered by Disqus
Today on Switzer
Here in Australia inflation is healthy without being excessive. In fact it is a Goldilocks situation – not too hot, not too cold, but just right!
ASIC chairman Greg Medcraft is in the Finance Minister's firing line for his comments on Wednesday that Australia is a "paradise" for white-collar criminals.
How is the bond market travelling, and what impact would a sell-off have on equities? Kumar Palghat of Kapstream Capital discusses this and much more. (Broadcast Thursday 23 October 2014.)
Earnings is beating Ebola but Doctors Without Borders could be Doctors Without Brains, and they could KO stocks!
A not-to-be-missed interview with Australian business legend Lindsay Fox, a one-time truckie who founded Linfox in 1956 which today has a turnover of $3 billion. (Broadcast Wednesday 22 October 2014.)
So what do we do about the Reserve Bank? How do you make sense of any central bank is probably the answer, but no wonder the pundits are currently so confused.