Car prices set to fall

Toyota fires the first shot in what may become a price war

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 19, 2012 1:23 pm AEDT

Now may be a great time to buy a new car, with Toyota launching a price war in the small car segment.

Toyota has today released its 11th version of the ubiquitous Corolla, with the entry level Corolla Ascent hatch selling for $19,990, the same price it was 11 years ago, and with many more features. That's likely to throw the cat amongst the pigeons, forcing manufacturers of other small cars to reduce their prices, in order to compete against the new interloper. Capped price servicing is also a feature of the new car, with a set price of $130 for up to six scheduled logbook services.

Toyota won't have it all its own way. Australia has the highest number of vehicle brands in the car market with 64 different brands, perhaps no wonder then that it's been rated the most competitive market in the free world. That's compared to just 51 for the US and 54 for the UK, according to VFACTS, despite the US selling close to 12 million new cars a year, and Australia just 1 million.

Increasing demand for more fuel efficient and less carbon polluting vehicles has seen sales of alternative fuel vehicles grow by 191% in September compared to last year, spurring even more competition.

At the same time, sales of SUVs (Sports Utility Vehicles) are continuing to grow strongly, while sales of the average family sedan have fallen dramatically. SUVs accounted for 29% of all new car sales so far this year. On the back of the strong SUV demand, ARB Corporation (ASX: ARP), which sells mainly 4WD accessories, including bull bars, tow bars and canopies, has seen its revenues rise by around 14% on average every year since 1998.

The days of Australians buying mostly large family sedans appears to be well and truly over, evidenced by declining sales of Ford Falcons and Holden Commodores. Medium passenger vehicles and sports cars have also continued to rise, up 12% and 54% respectively so far this year, compared to last year.

Competition is also likely to increase as up to 10 Chinese car manufacturers are looking to sell cars in Australia. That could increase margin pressure on motor vehicle dealers such as Automotive Holdings Group (ASX: AHE) and AP Eagers Limited (ASX: APE).

For motor accessories retailers, Super Retail Group (ASX: SUL) with its Super Cheap Auto stores and Metcash Limited (ASX: MTS) with its recent buy into Autobarn stores, more new cars should be good for their businesses. That should see increasing demand for after-market products suitable for all brands.

Any way you look at it, more competition is good for Australians, and now might be a good time to go shopping.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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