Vehicle Affordability Index Hits Decades-Long High in Australia

Australian new-car prices are at their lowest levels in 36 years, based on a comparison of average weekly earnings with the cost of a new vehicle.

Stockbroker Commonwealth Securities, operated by the Commonwealth Bank of Australia, says new cars are more affordable than at any time since 1976.

An individual on an average wage now needs to work about 30 weeks to buy a new locally built Holden Commodore or Ford Falcon, The Age newspaper reports, quoting a CommSec report.

Just 18 months ago it would have been 32 weeks, while a decade ago it would have taken another two months' work.

Rising wages and falling vehicle prices mean an average worker now can buy a luxury car such as a Porsche with 83 weeks' wages, rather than the 2.5 years of earnings needed 10 years ago.

The Age quotes the report as saying Australians, in most cases, still are paying more for the same model of car than Americans, because the savings from a strong Australian dollar are not being passed on to consumers.

CommSec Chief Economist Craig James says tariff reductions are one of the main reasons cars are more affordable.

“You go back to the 1980s and the tariff on imported cars was 57.5%,” James tells the Australian Broadcasting Corp. “Now the tariff is in the order of 5%, so imported cars have gained a lot in terms of share.”

James says free-trade agreements with countries such as Thailand mean more cars are being imported and competing with local manufacturers. This is a main reason why Australian auto makers are struggling, he says.

There has been a shift to manufacturing in lower-wage countries such as Thailand and South Africa due to FTAs that remove even the remaining 5% tariff.