Best time to buy a new car since the GFC

As foreign brands use Australia as a dumping ground to make up for weak overseas demand – and local buyers are cashed-up to take advantage of the savings.

The strong Australian dollar and the European debt crisis have created a perfect storm to make way for the cheapest new cars since the Global Financial Crisis hit in late 2008, when big brands discounted drastically in a desperate bid to raise capital.

Most car makers are either offering super-low interest rates to disguise the price cuts and preserve resale values, while others are unashamedly using bargain prices in bold type. For example, the Toyota Corolla is now $18,990 drive-away – about $6000 off its RRP (or 25 per cent off) as it makes way for a new model.

The aggressive discounting is driving Australia to record new-car sales, with the strongest nine months in the nation’s history. The 2012 tally is likely to reach almost 1.1 million.

“Unlike the GFC, this is not stressful discounting, it’s just perfect conditions,” says Doug Dickson, the boss of Mazda Australia, which sells more cars to private buyers than any other brand.

“Personal savings are high, employment is high, wages are high, there is heaps of money in the economy. “There’s no question new cars right now are streets ahead of the value they were even 10 years ago … and the trading conditions are better than they were in the GFC.”

Dickson said interest rates, which have been cut by 1.5 percent since November 2011, were a factor in the record new-car sales. “And a further 25-point trim is likely before Christmas, which will take us down to 3 per cent, the lowest level in 10 years”.

“A lot of people have paid down their mortgages or paid off debt and now they want to spend something on themselves,” says Dickson.

The discounting means that there is less profit in the sale of each model, but dealers are making up for this by selling more cars. “In times like this … certainly you can’t make as much money on each individual car, but you can sell more cars,” says Dickson.

Data from audit firm Deloitte shows that dealers for mainstream brands clear on average about $2000 profit per car – and the luxury brands aren’t faring any better. They too are averaging about $2000 profit per car – but they sell fewer cars.

European luxury marques are pushing cars onto dealers with hidden bonuses of $8000 to $12,000 on some models, either by loading the cars with extra equipment or “over-valuing” a trade-in.

“I wouldn’t call it dumping but there is definitely extra production capacity in Europe that frees up supply to Australia,” says the Asia-Pacific boss of Jaguar-Land Rover, David Blackhall.

“Plus our [Australian dollar] exchange rate has improved by 35 per cent in the past five years, so that’s a massive shift. And that enables the prestige brands to be a lot more competitive.”

The latest Roy Morgan research shows consumer confidence is the highest it has been since February. “House prices are showing some signs of improvement and superannuation portfolios have improved,” says Dickson.

“So what does the [overseas economic] negativity mean for the Australian car industry? Frankly, not much.”

This reporter is on Twitter: @JoshuaDowling