Big cars lose favour as fuel prices soar

21:38, Feb 17 2009

High petrol prices have begun to bite into big-car sales, with surges in registrations for motorbikes and a significant slowdown in the 1600cc-plus vehicle category.

Figures supplied by Westpac show registrations for 1600cc to 2000cc cars dropped 5.5% in 2007, while gas guzzlers in the 2500cc to 5000cc range rose only 0.5% on the back of two years of "thumping growth" in registrations, says Westpac senior economist Doug Steel.

Motorcycle registrations rose 18.9% last year to 11,540 the highest increase for 20 years. On a monthly basis, motorbike registrations were 50% higher in October 2007 compared with October 2006.

As a share of the total market, sales of vehicles over 2000cc have dropped from 24.8% in 2004 to 20.7% last year, while under-1600cc cars have leapt from 20.9% in 2004 to 24.8% in 2007.

Petrol prices spiked to 175.9c a litre on January 4 just a cent below the all-time high of 176.9c in August 2006 after the crude price hit $US100 a barrel on January 2, on the back of relentless demand from China and India and widespread instability in oil-producing regions.

Oil companies and fuel retailers collected considerable flak for hiking prices just before motorists returned home from their holidays; Shell, BP, Caltex and Mobil say they held prices for as long as possible but the early January jump in the crude price was the last straw.

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AA motoring affairs manager Mike Noon said the cost of filling a 50-litre tank in a medium-sized car was $19 higher than it was a year ago.

The high NZ dollar has been "the consumer's friend" for the past year, he said, as petrol prices would have been considerably higher if the dollar were lower.

And there are more "nasties" to come, including the yet-to-be legislated regional petrol tax for Auckland and Wellington (expected to be up to 10c/litre), an expected 5c/litre charge for adding biofuels to petrol and diesel, and carbon charges of 4-12c/litre to replace aborted plans for a $360 million-a-year petrol tax. GST will be added to all these levies.

Economists warn that consumers will struggle this year with increased petrol, food and debt servicing costs, and electricity and gas prices that have risen 4% annually for the past four years. Flat house prices and tightening bank liquidity mean householders will find it harder to use equity in their homes to fund consumption a problem for the average consumer, who spends $1.14 for every dollar earned.

Shamubeel Eaqub, a director of investment research at Goldman Sachs JBWere, says petrol prices can have a profound effect on the psyche of households.

In times of high economic growth, petrol price increases can be easily absorbed but it's a different story in a downturn. This was clear in 2006, when petrol prices peaked at 176.9c on August 4 but dropped to 138.9c on November 10.

Statistics show consumption of fresh food, clothing and restaurant and bar food dropped significantly after the price spike but rose again as the petrol price came down.

Sunday Star Times