Oct. 2 (Bloomberg) -- In Australia’s Port Hedland, 50 mechanics work through the night at Pilbara Motor Group, customizing new sport-utility vehicles for cash-rich miners, defying assertions that the country’s commodities boom is over.
SUVs have become so popular that they account for nine out of ten autos sold in Pilbara Motor’s dealerships. Nationwide, a third of the passenger vehicles sold are SUVs, more than triple their share in the U.S. or Europe.
The sales surge for the pricey vehicles indicates Australian consumers have yet to run out of money earned during the country’s commodity-driven economic boom, even as prices of coal and iron ore fall, according to Phil O’Donaghoe, an economist at Deutsche Bank AG in Sydney. That stands in contrast to concerns voiced by Resources Minister Martin Ferguson, who has said the boom is coming to an end.
“Disposable incomes are healthier than some of the other data is telling us,” O’Donaghoe said. “There’s a disconnect between people’s perception of their finances and their ability to buy things.”
Sales of Ford Motor Co.’s Territory, Toyota Motor Corp.’s RAV4, Chrysler Group LLC Jeeps and other SUVs rose 50 percent in June from a year earlier and made up a record 34 percent of passenger vehicles sold in the first half of this year.
That compares to a 10 percent market share in the U.S. over the same period and 7.7 percent in the European Union’s core 15 economies during the first eight months of 2010, the most recent period for which data is available.
The willingness of consumers to buy SUVs is a positive sign for an economy hit by a 25 percent fall this year in the price of iron ore, Australia’s largest export, said Saul Eslake, chief economist at Bank of America Corp.’s Merrill Lynch in Sydney.
The SUV sales boom “does seem to sit oddly with other stories about people struggling with the cost of living and cutting back on discretionary spending,” Eslake said.
The Reserve Bank of Australia cut its key cash rate today to its lowest level since 2009. Australia’s economy will need to see a strengthening in “other components of demand” as mining investments in the next 12 months fail to meet earlier expectations, the central bank said.
In Port Hedland, in the arid north of Western Australia state, ships line up to export about 250 million tons of ore each year. Car sales in the town, where the average maximum temperature is above 35 degrees Celsius (95 degrees Fahrenheit) for six months of the year, are thriving.
The detailing workshop at Pilbara Motors, which sells Toyotas and Nissans, is open 24 hours, seven days a week. That’s to meet demand from customers in the remote town, closer to Singapore than Sydney and an 18-hour drive from the state capital of Perth.
“Mining’s got a lot to do with it,” sales manager Shane Tomerini said by phone. “People earn a good dollar in the mining industry so they can buy quite expensive motor cars.”
Buyers, many of them employees and contractors of miner BHP Billiton Ltd., want a vehicle that can take them over harsh roads to remote outback gorges and Indian Ocean beaches, he said. Workers in the sector earn an average of A$118,000 ($124,000) annually, more than double the national average of A$55,000, according to government data.
The economic benefits of the commodities boom are fading, Resources Minister Ferguson said in a Sept. 17 interview with Bloomberg Television, as growth slows in China, the biggest buyer of Australian resources.
“The easy earnings of high prices are now gone,” the minister said. “We know we have to work hard to maintain our competitiveness internationally.”
Ferguson isn’t alone in his view that Australia faces tougher times as mining weakens. Hedge-fund manager Jim Chanos expects slumping Chinese property markets to hit Australia and Brazil. Ross Garnaut, an adviser to the Australian government, said living standards may fall as the boom falters. Bill Evans, chief economist at Westpac Banking Corp., predicts household spending will shrink.
BHP warned Sept. 19 that China’s iron ore demand has slowed by more than half. And Australia’s third-biggest iron ore producer, Fortescue Metals Group Ltd., said Sept. 4 that it would defer $1.6 billion of spending due this year.
Adam Alexander, a Goldman Sachs Group Inc. analyst in Melbourne, says monthly SUV sales data can be an early warning of the ripples from such events. He has been tracking the statistics for the last three years to get an early read on consumer spending in Western Australia, the biggest beneficiary of the country’s mining boom.
A weak performance at Crown Ltd.’s Burswood casino in the state capital Perth in 2011 was foreshadowed by lackluster local SUV deliveries, he said, and rising SUV sales the following year presaged a rebound for the casino.
“If you look at Western Australia, SUV sales are off the charts,” indicating the slowdown has yet to materialize, Alexander said.
Some of the demand for SUVs has come at the expense of other vehicles. Despite the continuing strength of the Australian dollar, which has made imports cheaper, passenger car sales are down 11 percent from their 2007 peak, to about 560,000 over the past 12 months.
Sales of the Falcon, a large sedan for the Australian market that Ford has made since it opened its first factory in the country in 1960, fell 25 percent in the first six months of this year, according to Bob Graziano, president of Ford’s Australian division. So Ford is reconfiguring its plants in Melbourne and Geelong to make fewer Falcons and boost production of the Territory, Australia’s top-selling SUV.
“People are moving into SUVs where previously they would have used a traditional car,” he said by phone from Melbourne. “You may never go off-road with these things, but you just feel that you could.”
While there’s little evidence of a slowdown today, Graziano said things aren’t likely to be quite as sweet as they have been in the past year or so.
An August poll by Roy Morgan Research indicated that 589,000 Australians intend to buy a car in the next 12 months, a six percent decline from a month earlier and 4.4 percent below the long-term average.
“We think it’s going to keep growing,” he said, though more slowly than the 20 percent-plus pace of the past year. “You’re not going to be able to sustain that rate.”
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