Car affordability best on record

By Leith van Onselen

Commsec has released new data today showing that new car affordability is the best on record:

A key reason that vehicle sales have been resilient over the past couple of years is lower prices – car affordability is the best since 1976. CommSec has extended a car affordability measure devised by the Australian Automobile Association using Holden vehicles. CommSec has also devised indexes using quarterly data over the past 20 years for other vehicles including the Ford Falcon and BMW vehicles.

CommSec estimates that someone earning the average wage has to work for 25.45 weeks to purchase a new Ford Falcon XT auto sedan. Just three years ago the same worker would have needed to work 32.04 weeks to afford the same vehicle and a decade ago the worker would have needed to work 37 weeks to make the equivalent purchase.

The massive improvement in car affordability has enticed buyers to move up the price curve and purchase higher- priced vehicles such as luxury cars. This trend has favoured imported car makes in preference to locally-produced vehicles. Even a Porsche Boxster ($106,490) is cheaper than a decade ago while wages are up 50 per cent over that period.

Without policy changes, I doubt current levels of car affordability can be maintained. With the Australian Dollar depreciating, and the local automotive assembly industry set to shutter by 2017, there is a high likelihood that cars will increase in cost.

That said, there are a lot of things the Government could do to make cars more affordable for Australian consumers, including:

1. allowing the importation of high quality second-hand cars, as occurs in New Zealand;
2. abolishing the 5% tariff on automotive imports;
3. scrapping the the luxury car tax, which is set at 33% on the marginal cost of vehicles above $60,316, and serves as a defacto tariff designed to raise the cost of more expensive imports and make local models, such as the Fairmont Ghia, more attractive; and
4. Scrapping Australia’s unique technical standards in favour of global rules, thereby opening the market to a wider array of foreign cars and reducing overall import costs.

Given the car industry is set to close anyway by 2017, the least the government could do is soften the blow on consumers and increase their spending power.

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