Economy drives down vehicle replacements

Fairfax Media

CONSUMERS REIGN IN SPENDING: In the six months to the end of May, the collective national petrol bill was $500 million more than in the previous year, but motor vehicle retailers reported a drop of around $400m in sales over the same period.

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Motorists are compensating for higher petrol prices by cutting back spending on new and used cars.

In the six months to the end of May, the collective national petrol bill was $500 million more than in the previous year, but motor vehicle retailers reported a drop of around $400m in sales over the same period.

The steep fall in motor retailing reflects both a drop in the purchases of used, imported cars, as well as a switch in the new vehicle market to smaller, more fuel efficient cars, says the Motor Trade Association.

Overall, however, we are actually buying a greater number of new cars than ever before, it says, but they are cheaper, smaller models.

The switching in car-buying patterns is accompanied by signs that motorists are holding on to their current cars for longer, as high petrol prices fuel reluctance to take on new weekly repayments on motor vehicle credit contracts.

The AA's technical advice manager, Jack Biddle, said holding on to the family car for longer might mean keeping the family motoring bill in check for now, but in the long term it was more a case of deferring spending than saving money.

Those switching to older cars, or hanging on to their cars for longer, needed to be aware that some vehicles, notably some European makes, did not age well, and repair bills could start to rise fast, Biddle said.

With an ageing vehicle fleet (over 12 years on average and possibly still climbing), too many deferred purchases might not be good news for the country's carbon footprint, but, said Biddle, a five to 10-year-old car should not lose too much in the way of fuel efficiency as it aged, provided it was well-maintained.

That meant finding a good mechanic to keep it serviced.

It is little surprise that households are reacting to high fuel prices, as motoring consumes a large chunk of household, and national spending.

The most recent official figures on household motoring spending come from the 2007 Household Expenditure Survey by Statistics NZ. It found that at the end of June last year, the weekly average household spend on motoring worked out at:

* $46.90 a week on the purchase of new and second-hand cars;

* $6.10 on vehicle parts and accessories;

* $38.10 on petrol and $3.90 on other vehicle fuels and lubricants;

* $8.60 on vehicle servicing and repairs.

That adds up to $5387.20 a year per household. Scaled up to take account of the spending of each of the estimated 1,569,200 households, that represents a total bill of $8.3 billion, not including insurance (according to the June 2007 HES, households spent $742.5m on vehicle insurance) or the interest costs of car finance.

Businesses boost the total even more. Retail figures to the end of May this year showed $15.9b of sales in the motor retailing, auto fuel, repairs and spares markets, though that did not include some $350m or so of business vehicle insurance, and lease and finance costs.

All up, it appears that at the end of June last year, households were spending around $1 in every $10 of their pre- tax income on motoring, and since then motoring has become more expensive. At the end of June last year, 91 octane petrol was fetching $1.57 a litre. By the end of June this year, it was at $2.11, a rise of more than 30 percent.

Given the size of the car economy, it is little wonder then that a recent AA online poll found 76 percent of respondents had changed their driving behaviour.

As a response to higher fuel prices, that was logical, said Biddle.

Motorists couldn't control the direction of the price of petrol, but they could control whether they drove to work in sluggish peak-hour traffic or left earlier and had a smoother, quicker drive, or cut back on the number of trips they made to the shops. Similarly, they could choose to be less heavy on the accelerator and brakes, all of which could take a little off the weekly petrol bill.

Although some could take dramatic action like buying a moped, or downsizing their car, others were trapped by family, lifestyle or employment circumstances, Biddle said.

Downsizing was also pretty painful at the moment, he said. Larger cars had plunged in value as buyers sought more fuel-efficient ways to travel, just as smaller cars had seen their resale value rise.

Back in 2003, a motorist selling a three-year-old Falcon and downsizing to a similar-aged Corolla would have released nearly $9400 as compensation for less driving comfort and power, as well as reducing their petrol bill. Today they'd end up with just $2500 in their pocket.

Financial planner Susanna Stuart said such losses had already occurred and should not dissuade anyone from downsizing.

Stuart said there was no hard and fast rule for households on how much was reasonable to spend on motoring, but she said families had to balance their spending today with what they needed to save towards their future goals such as building a retirement nest egg.

Households spending up on motoring, but saving nothing for the future, needed to think carefully about their choices.

Similarly, in a worsening economy, loading up on car debt brought risks to family finances, and families needed to think about how they would cope if they suddenly went down to one income, Stuart said.

Her own life is largely car-free, since she has chosen to be friendly to the planet by living close to work in Parnell in Auckland and using public transport - easy when you live on a bus route.

It's also made her better off. "There are few more depreciating assets than a car," she said.

Leaving the car in the garage meant savings grew faster, as the likes of BP, Shell and the local mechanic got a smaller slice of household income.

Public transport isn't realistic for many New Zealanders, however. Another AA online poll found that only a quarter of respondents said they had been using more public transport in response to rising fuel bills.

Stuart said there might be other, less extreme, ways for families to cut the motoring bill.

From previous surveys it is clear those with higher incomes have greater scope, though less need, to cut their motoring spending, simply because they earn so much.

At the end of 2001, households earning $101,100 or more were spending on average just under $162 a week on motoring.

Those on $50,000 were spending around $100 a week.

Stuart said there might be ways families could cut back motoring costs such as switching expensive car finance onto the mortgage, though they had to ensure they didn't end up paying it off so slowly that the extra interest ate up the savings.