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The clock is ticking on cheap imported cars

We’re a gloomy bunch right now, with that grand abstraction ‘the economy’ weighing on householders’ minds, according to the latest Roy Morgan-ANZ consumer confidence survey.

As ANZ’s co-head of Australian economics Felicity Emmett notes, households “have been without a positive narrative on the prospects for the economy” for some time.

The change of prime minister is widely credited with pushing confidence back above its long term average, but most components of this week’s Roy Morgan survey were weaker.

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The one surprising exception was a 6.7 per cent rebound in the number of households saying it was ‘time to buy a major household item’ – which Emmett says was able to offset the other falling indicators.

But just how ‘major’ an item will people be looking to buy? A new stereo? A washing machine?

Well how about a new car?

Depending on which marque you favour, Australians may now be in the perfect sweet spot to get a good deal. That might surprise some, as the daily news cycle is full of references to the ‘falling dollar’ and ‘more expensive imports’.

Those reports can create a false impression, however.

Richard Johns, economist and principal at Australian Automotive Intelligence, points out that the strength of the Aussie dollar against the US-dollar is not very important for imported car prices. The currencies to watch are the Japanese yen, the Korean won, the euro, and the Thai baht – all of which are on the chart below.

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snapshot-carsThe good news, is that the Aussie dollar is still fairly strong against the yen – the currency that influences our most popular car purchases. Despite a bit of volatility, it’s at about the same level as it was three years ago.

In those same three years, by comparison, the Aussie has plummeted against the greenback by more than 30 per cent.

If the currency rates in the chart above were to hold steady (they won’t), what car buyers would begin to see next year is price rises flowing through from Korean and US car makers first, followed by European makers.

But having said the current exchange rates won’t hold steady, exchange rate moves won’t all be down to volatility – the Aussie is likely to weaken against this group overall.

That will most likely force vehicle price-rises that until this point have been absorbed by manufacturers.

The exact timing of such price increases is difficult to forecast accurately due to the fact that manufacturers use currency hedging strategies to smooth prices, as far as possible, over time.

And the relationship to the Thai baht is, says Johns, a bit more complex than other currencies. That’s because while Japanese manufacturers such as Toyota and Honda build vehicles in Thailand for export to Australia, a good portion each car’s components come from Japan.

In Richard John’s view, the fact that car prices have hardly moved while the Aussie dollar has weakened is not something to take for granted.

In June of this year, CommSec’s Car Affordability index showed car prices at their most affordable in 40 years – and by and large, while headlines have shouted ‘more expensive imports!’, that affordability is still with us.

The risks of prices rising are large, not least because some pretty big currency moves are likely when the US Federal Reserve finally begins tightening monetary – possibly, though not widely predicted, as soon as its meeting on Thursday of this week.

Householders, and businesses for that matter, who want to lock in an affordable vehicle, may want to think about it sooner rather than later.

SEVEN ELEVEN STOCK

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