Pete Wargent blogspot

PERSONAL COACH | PROPERTY BUYER | ANALYST

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Monday, 20 November 2017

The car in front is an import

Shuttered

Automotive production continues to plummet, with annual volumes nearly 50 per cent below their December 2010 level, and falling fast, so the new car you buy next year will likely be made somewhere else. 


The Department of Employment projected that the factory closures at Elizabeth in Adelaide (Holden) and Altona in Melbourne (Toyota) could cost 27,500 jobs over the years ahead, leading some commentators to predict the end of days for Australia.

Indeed, some gloomy reports even speculated that the closures could snowball into hundreds of thousands of jobs losses, which always seemed a bit far-fetched given that the shutdowns have been discussed for years.

It was wise to be prudent and wait for the halting of operations to pass, which has now occurred, but if there were to be any earth-shaking initial impacts then they weren't yet in evidence in the October 2017 employment figures.

In the event, total employment exploded +355,700 higher over the year to October, sending the unemployment rate careering to a 4½ low, and with the ABS also now putting job openings at the highest level on record

Furthermore, the more timely SEEK job advertisements figures showed openings tearing 25 per cent higher in South Australia and 18 per cent higher in Victoria, so it's probably safe to say that the world hasn't ended for Adelaide or Melbourne. 

Interestingly some of the sectors creating tens of thousands of new job openings lately have included engineering, technicians, manufacturing, including machinery operators & drivers, trades & services, and transport & logistics.

Long term production employees at Holden and Toyota might have received a meaningful payout, potentially even providing a mini-boost to the local economies. 

"Pivot, pivot, pivot..."

There has been much criticism of the government for not propping up the loss-making auto assembly industry. 

Luci Ellis of the Reserve Bank of Australia rattled off the counter-arguments in a blazing speech on economic rationalism last week. 

There's no doubt that the auto industry is facing a fair amount of uncertainty and potential disruption over the years ahead. 

For example, a great deal has been made on the newswires this week of Tesla's forays into driverless trucks, electric vehicles, and "insane" roadsters.

Interesting stuff, though whether a company which has barely produced anything to date - let alone sustainable profits - will prove to justify a market cap north of US$50 billion (and an enterprise value of a baffling magnitude) can only be known in the fullness of time.

It's a good story, I'll grant it that!

Greatly exaggerated

For all the excitement of electric rigs and electric supercars that can accelerate ridiculously fast (albeit not on Australia's congested highways, lol), the death of the humble road vehicle has been somewhat exaggerated. 

Annual unit sales increased to 1,181,418 in October, marginally the highest result ever notched, powered by record Sports Utility Vehicle sales. 


At just under 99,000 the seasonally adjusted monthly sales were a little below the all-time monthly peak set last year, a fact which some have tried to claim represents stretched household budgets.

A more realistic narrative is that low interest rates and tax incentives pulled forward demand in New South Wales, where anyone and everyone considering purchasing a new vehicle must have done so in 2016. 


With more than 1.18 million sales recorded over the past year traffic congestion will get worse rather than better, adding to the urgency for the delivery of transport infrastructure projects, of which there are many now in the pipeline. 

A final observation, the trend in new motor vehicle sales in Western Australia has now been rising for 9 months consecutively. Western Australia saw 8,570 new motor vehicles sold on a seasonally adjusted basis in October, a solid increase of +8.2 per cent from a year earlier. 

While much commentary is focusing on more downside, a number of indicators are pointing towards brighter times ahead in the west.