New car buying patterns shifting dramatically

New car buying patterns shifting dramatically

While there has been much focus on the steady improvement in the sales of new cars in recent months, a more pronounced and longer term change has been unfolding. A combination of economic and lifestyle factors is responsible for a dramatic shift in car buying patterns since 2004 according to the Motor Trade Association (MTA).

While the impact of rising fuel prices on vehicle choice will not be a surprise, a number of other, less predictable factors that have come into play in recent year that have combined to produce more substantial changes in the types of new cars that New Zealanders are buying than had been predicted.

Since April 2004, when the current market segmentation guidelines for new vehicles were introduced, 91 ULP petrol has increased in price by close to 55 percent – from $1.15 litre in April 2004 – through to around $1.77 today.

“Once the price of oil started its upward march in mid 2004, it was clear to most in the industry that larger would progressively be replaced by smaller. What’s actually occurred since then has been more complex than that, and thrown up trends and patterns that we doubt anyone saw coming” says MTA Marketing and Communications General Manager, Ian Stronach.

“As an example, we knew there would be some inevitable shifts in the market as a result of demographic changes, but the way older buyers have been affected and in turn reacted could not have been foreseen.”

Large cars no longer hold sway and along with medium sized cars have, as a proportion of all cars sold, fallen away markedly since the middle of the decade. During that time small and light cars have, not surprisingly, become more popular, even though that growth has stalled somewhat in recent times. Less predictable though has been the growth in popularity of Sport Utility Vehicles (SUV’s), which tend not to be focused on fuel economy.

While fuel efficiency has steadily improved in recent years, it has not been enough to prevent a strong shift in buyer preferences. In the face of higher fuel costs, such a shift is not surprising, although the degree to which some sectors have been affected is. As a result, the composition of New Zealand’s national fleet is changing rapidly, with the speed of that change only likely to increase.

Once the first choice for ‘executive’ and ‘family’ motoring, the large car segment (typically cars upwards of 3.0 litre engine size) has almost halved in the past five years. From a dominant 24 percent share of new car sales in 2004, now, after the first four months of 2010, large cars account for just 14 percent of new cars sales.

Commenting, Stronach says “Large cars now form the smallest segment of the market. This is a dramatic turnaround in just a six year period, and one few would have been forecasting, at least not to that extent.”

With larger cars tending to be much more profitable than smaller vehicles, the consequent fall in popularity can have a flow-on impact on manufacturer and distributor profit levels, particularly for those brands that are more dependent on sales from this segment.

The other segment to suffer from a change in buyer preference during this period has been the Medium segment (between 2.0 and 3.0 litres) which has seen its share slide in unison with the large car segment; from 18 percent in 2004 to 14 percent today. This is now the second smallest segment of the market. It is showing a slight lift through the first few months of 2010, probably a reflection of the eventual replacement of many fleet cars that had been deferred through the heart of the recession.

The Small (1.3 – 1.5 litre) and Light (1.6 – 2.0 litre) segments have been major beneficiaries from these changes, although perhaps not to the extent that they might have been. Small cars have grown in popularity from just over 23 percent in 2004 to around 28 percent today; the largest of all segments. Light cars too have shown good growth, up from 11 percent in 2004 through to 18 percent today.

Over the last few months though, both of these segments have seen their proportion of the market fall by around 2 percent from their 2009 peaks. Many of the cars in these segments have traditionally been purchased by older, private buyers. This is the same group who have been hit hard in the fall out from the numerous finance company collapses in recent years. With an estimated $6 billion ‘lost’ and unlikely to be recovered in the near future it may be that some of these older buyers will be unable to purchase a new vehicle in the foreseeable future.

The other intriguing change in this period has been the shift to SUV’s. New Zealand is not alone in this; developed markets all across the world have seen a strong move to these previously ‘off-road ‘ vehicle by buyers seeking out their increased versatility, sophistication and perceived levels of safety. With flexible seating and storage options, these vehicles increasingly provide an acceptable option for owners seeking the space of a large car with the convenience of a smaller vehicle. Safety is not significantly compromised, and with more than 60 different models available in the market, there is no shortage of choice either. The biggest growth in this now crowded segment has come from private buyers – up 73 percent for the year to date.

At the same time as this rapid rise in popularity for new SUV’s, the previous supply chain of used imported vehicles has declined significantly. New emissions regulations for used imports introduced at the start of 2008, along with increased buying competition in Japan have seen the pool of SUV’s (both diesel and petrol powered models) eligible to be imported into New Zealand reduce markedly. With fewer used import options available, it seems that more buyers are opting for new.

With further fuel cost increases likely with ETS introduction and GST increase in the coming months, there seems sure to be even more twists to what has been a dynamic market in recent years.

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