If home ownership is the great Australian dream, surely owning a vehicle comes in close second. While car ownership certainly hasn’t become cheaper for families already facing cost-of-living pressures, Australia remains a nation of car lovers – with 1.8 vehicles parked in the driveway of the average household according to the most recent census data.
What’s clear is Australians still need an affordable, reliable way to get between point A and point B. And for most households and organisations, this still means owning a car. Brokers can help by connecting their clients with new and innovative finance lines for personal and fleet vehicles.
The state of car lending
The years following the start of the COVID-19 pandemic saw demand for car finance reach record highs. Part of this was driven by rising prices, caused by a number of factors, such as labour shortages, manufacturing disruptions, and supply chain concerns.
Fast forward to the present and, while things have cooled somewhat, appetite remains.
Since April 2023, the monthly value of new loans for the purchase of road vehicles has sat above $1.2 billion.
The most recent Lending Indicators data from the Australian Bureau of Statistics (ABS) shows that the value of new loans for the purchase of road vehicles rose 0.8 per cent to $1.39 billion in May 2024, a 7.1 per cent increase from the year prior ($1.3 billion).
While this is slightly down on the $1.45 billion record high achieved in October 2023, Mark Rayson, head of specialised finance aggregator COG Aggregation, says there is still plenty of demand in the auto lending space.
“While FY 2024 continued to see records broken in new car sales, we have seen a trend of lower demand during the second half of the financial year compared to the same period last year,” Rayson tells The Adviser.
“We believe this trend is largely due to the surge in demand driven by tax incentives at the end of last financial year, rather than any significant decline in the market this year.
“Used vehicles have been weaker, part of this is due to new vehicle supply increasing which has put downward pressure on used stock pricing. Cost of living pressures have also caused the demand for consumer vehicle finance to fall.”
Rayson adds there has also been an uptick in novated leasing – an arrangement where employees finance new or used cars through repayments made in their pre-tax salary.
“With the changing rate market, we have [also] seen an increase in customers taking on variable rate products – where they may have traditionally chosen fixed. We see this as a sign that many customers feel we are at the upper end of the interest rate cycle,” Rayson says.
“Overall, our group has settled more deals than ever during FY24, just the product and lender mix is changing. Working with our lenders and educating brokers has been a key differentiator for us in the last 12 months.”
Rising demand for electric
Given the size of this country, having a car continues to be seen as a necessity rather than a nice-to-have. But drive around any suburb nowadays and the types of cars parked on driveways are changing. While utes and Amaroks continue to be popular, there’s growing demand for electric vehicles (EVs).
Spurred by a government that seems eager to make EVs a realistic proposition, Australia is starting to catch up to other developed nations.
In April, market researcher Roy Morgan revealed that there was an 11.3 per cent increase in the number of Australians planning to buy a hybrid or fully electric vehicle (1.9 million) over the next four years, surpassing the number of Australians intending to buy petrol vehicles for the first time, which fell 8.1 per cent to 1.7 million in the same period.
11.3 per cent
Increase in the number of Australians planning to buy a hybrid or fully electric vehicle over the next four years as per Roy Morgan in April
At the time, Roy Morgan CEO Michele Levine says these findings were indicative of Australia’s changing preferences and the improved accessibility of electric vehicles.
“The latest figures on intention to buy show the preference to buy an electric vehicle (‘EV’) in the next four years has overtaken diesel vehicles for the first time,” Levine says.
“This no doubt reflects the increasing choice available in the local EV market.”
Lenders have been quick to come to the table to help broker clients finance these purchases. Pepper Money was one of the first lenders to offer EV loans to Australians and continues to see strong demand for this product line. It has financed 8,986 electric vehicles since 2015, according to 2023 results, offsetting 39,000 tonnes of CO2 in 2023.
And, just last month, auto and equipment finance lender Metro announced a new line in tandem with a $50 million investment from the Clean Energy Finance Corporation (CEFC) that provides discounts to SME borrowers choosing EVs. Under the offering, CEFC will provide a 0.5 per cent discount on Metro’s standard rate for eligible EVs, which is then matched by an additional 0.5 per cent discount from the non-bank lender. For example, eligible customers with a loan of $60,000 for an EV could save some $1,700 in interest expenses over five years.
Demand is continuing to rise, with the Commonwealth Bank of Australia revealing that it had seen a 37 per cent increase in EV purchases among its car loan customers in six months.
The shift in consumer demand and incentives from the government means brokers have the perfect opportunity to make their clients’ electric dreams a reality.
Indeed, Rayson says he doesn’t think demand for EV will dip any time soon, especially as prices continue to fall.
“With our current societal trend towards green and EV vehicles, we don’t envision a downturn in the future, however it is still an emerging technology. We are seeing more manufacturers enter this space and more new brands than ever before. Pricing in the segment has been coming down, as you would expect with any new technology,” Rayson says.
“Recently I have seen a customer with an order in transit have three price drops while waiting for their new vehicle, this is not something we see often. A good outcome for the customer, but also shows that this market is still very dynamic, which we expect to continue into the future.”
What’s in it for brokers?
Among all this, the opportunity for brokers becomes clear: help clients understand the ever-changing car finance landscape, including the shift towards EVs, and keep ahead of innovative new loan products and lines of credit.
“Offering car finance is one of the quickest ways you can help a client, whether they are a current mortgage customer, an SME client or a new prospect,” Rayson says.
Offering car finance is one of the quickest ways you can help a client
- Mark Rayson, head of specialized finance aggregator, COG Aggregation
“With constant improvements in lender technology, processing an application for vehicle finance is faster and easier than ever before. Some of our lenders are often able to settle a car loan within hours of the application being submitted.”
While cars may never replace the family home as the great Australian dream, they come pretty close. By writing car finance, brokers can help their clients access one of the most used and most essential assets for a family or business.
“Almost all customers need cars. That doesn’t matter if it’s for consumer finance where people need a car to get to work, to the shops or to run the family around town, or commercially for getting to job sites or transporting goods,” Rayson says.
“If the population is increasing, demand for vehicles will also be increasing, and we only see the level of demand improving in coming years.
“So, for brokers, why wouldn’t you want to be in front of that trend?”
