How much will you spend on your next car?

Posted on Monday, February 29, 2016 - 12:35

It almost seems like there’s an obvious answer – How much will you spend on your next car? As much as I can afford! However, research by Roy Morgan Research suggests the answer isn’t as intuitive as we think.

Where do you fit?

Nearly 10% of the population – 2.2 million Australians – are expected to buy a new car in the next four years. 21% of those people will buy a car in the price range of about $30,000-$39,000. This assumes the buyer has a combined household income of the average Australian - $133,000. However, households earning $200,000 or more will likely buy a car costing them about $48,830. This is 33% higher than the average overall.

The funny thing is this – the higher income earners will spend less as a proportion of their income compared to the average income earners. Average income earners will only spend 28% of their average income on a car, while the higher income earners will spend 24%.

The income in the over 200k bracket is on average about $250,000, which means they are only spending about 20% of their overall income.

Despite the higher income, only 9% of the over 200k earners expect to pay over $75,000 for a new car. 19% expect to pay between $50,000 and $74,999 compared with 11% of all new car buyers.

Roy Morgan Automotive Research Industry Director Jordan Pakes says “Household income is only one factor when it comes to deciding what to spend on the next new car. Some lower income homes, such as retirees, may often have large nest eggs, while others on $200,000 or more a year may have big mortgages and additional family expenses.”

But is that all there is to it? Or do changing tastes account for the big spending?

Baby SUV Boom

Another explanation is that Australia is turning toward “baby” or compact SUVs. In 2015, Australians bought 16% more compact SUVs in 2015 than ever before. Top selling Mazda CX-3 tips the scale at $33,990 (list price) which is far below the average Roy Morgan states.

Though slightly pricier, they edge out the small car segment, which dipped by 8% in 2015.

Australians know what they love, and that’s the mid-size hatch or sedan. Sales of mid-size Toyota Corolla topped sales charts, pushing 42,073 units last year. The similarly priced Mazda 3 sold 38,644 units. Both match each other for comfort, handling, safety and performance – and both have an average list price of $24,000.

With that in mind and the trend toward compact SUVs, which cost about $20,000 dearer than the Corolla and Mazda 3 (not including luxury marques like Porsche or Mercedes), it could partially explain the rush to the higher end of the market.

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