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Market Insight: Business confidence bounces back

Riding high: SUV was the only sector to return a positive result for business vehicle purchases in July, but remains well down compared to last year. Private SUV sales, on the other hand, are booming.

Australian business confidence improves, but optimism not yet reflected in car sales

15 Aug 2014

THE Australian motor industry is hoping that an improvement in business confidence will have a direct impact on business vehicle sales, which are continuing to drag down the market this year.

Figures published by Roy Morgan Research this week show that business confidence rebounded in July, improving 10.2 per cent on June and returning to levels not seen since the federal budget was handed down in May.

Business confidence remains 12.6 per cent below the peak recorded in October last year, following the election of the Abbott government, but is now slightly above the average of the past four years (118.5 points, based on the research firm’s methodology).

According to Roy Morgan, which conducted 950 interviews with all types of businesses across Australia last month, the spike in confidence came from the extra proportion of businesses believing that economic conditions in Australia would improve over the next 12 months, and also over the next five years.

Fifty-seven per cent of respondents thought that the next 12 months would be a good time to invest in growing their business, up five per cent.

This more optimistic outlook is generally in line with an improvement in consumer confidence, although Roy Morgan’s surveys show declines in consumer sentiment over the past two weeks.

“The increase in business confidence in July was expected given the generally positive reaction as seen in the improvement in consumer confidence throughout the month,” said Roy Morgan Research’s industry communications director Norman Morris.

“Both business and consumers are obviously overcoming the shock of the budget and showing increased optimism in the short- to medium-term in the outlook for the Australian economy.

“Confidence in the key areas of retail, construction and manufacturing, which were seen as making up for a slowdown in the mining industry, showed some improvement in July but these sectors all remain below average in confidence.”

Mr Morris said the full impact of the federal budget was yet to be seen, given the problems the federal government is encountering with passing legislation through the Senate.

“This may be resulting in a short-term improvement in confidence but continuing instability and uncertainty is not a good environment to make business decisions,” he said.

“In the meantime, the improved level of confidence in the economy picking up over the next five years is likely to increase the appetite for business expansion and borrowing, which is good for economic growth and recovery.”

VFACTS figures from the Federal Chamber of Automotive Industries (FCAI) show that increased business confidence is yet to translate into vehicle sales, with a 5.1 per cent downturn in July marking the 12th straight month-on-month decline.

It followed a poor result in June, which saw business sales down 13.4 per cent for the month, while the last time a positive result was recorded for the sector was in July last year.

“Business sales continue to fall behind 2013 sales figures, with business buyers purchasing 5.1 per cent fewer new motor vehicles than in July 2013, bringing year-to-date figures 8.4 per cent lower than in 2013,” said FCAI chief executive Tony Weber.

Business sales of passenger cars were down 9.5 per cent last month to be now 4.2 per cent in arrears to the end of July compared to the same period last year, while sales of light commercial vehicles were down 7.4 per cent last month, leaving business support for the LCV sector down 12.3 per cent YTD.

There was a slight improvement for business sales of SUVs last month, up 3.8 per cent, but this section of the market remains 10.6 per cent behind the new registrations recorded in the first seven months of 2013.

In comparison, private vehicle sales and government purchases are up 2.1 and 6.4 per cent respectively this year, while the rental sector is also now showing signs of recovery, improving 8.6 per cent last month to be down just 2.4 per cent YTD.

Roy Morgan reports that all states continue to have similar levels of business confidence, with Tasmania now narrowly ahead of Western Australia, followed by Victoria, Queensland, South Australia and New South Wales. In July, all states showed some improvement.

In terms of vehicle sales, only NSW is in positive territory so far this year, up 1.3 per cent compared to Victoria (-1.5 per cent), Queensland (-4.7 per cent) and WA, which has experienced the sharpest downturn this year – down 8.1 per cent YTD.

Tasmania has fallen 7.4 per cent this year (cars sales dropped 11.2 per cent in the island state last month), while SA, NT and the ACT are down 0.9, 3.7 and 2.5 per cent respectively.

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