High interest rates yet to dent used car purchases, says Carsales.com as profit soars

Car buyers are so far ignoring the aggressive interest rate rises, continuing to spend big, creating a headache for Philip Lowe and the rest of the RBA board.

Carsales boss Cameron McIntyre said the group’s performance for the six months to December 31 has been exceptional. Picture: Stuart McEvoy/The Australian

Aggressive interest rate rises have so far failed to dampen demand for used cars, with ASX-listed auto classified group Carsales.com saying Australians are continuing to spend big on vehicles.

Carsales half-year net profit has surged from $74.6m to $416.5m after it completed a $1.2bn acquisition in the US and continued to capitalise on the pandemic-fuelled used car boom.

Earnings before interest, depreciation and amortisation across its Australian business vaulted 15 per cent to $105.2m, off double-digit growth in dealer and private listings.

But as pressure is heaped on Reserve Bank governor Philip Lowe after nine consecutive monthly interest rate hikes – with more expected to come – Carsales chief executive Cameron McIntyre said the aggressive tightening was yet to influence Australian car buying habits.

“At the moment, we haven’t seen any change in intent,” Mr McIntyre said.

“The way we sort of think about it would be on a $30,000 car purchase – If you assume that’s the average price of a used car. Four interest rate increases of 25 basis points will add about $300 to that person’s interest cost on that car, if they borrowed 100 per cent of the purchase price.

“I think we’re probably not at the level where we’re seeing consumers changing or moving away from or deferring their car buying choices.”

The strong car market is expected to cause Dr Lowe and the rest of the RBA board a headache as it fights to contain persistent inflation. Transport, which includes cars, prices surged 8 per cent in the December quarter, compared with the same period in 2021, helping lift inflation to its highest level in more than 30 years.

In the past 12 months, car prices have jumped five per cent as manufacturers pass on higher input cost from a global supply crunch.

The good news is the supply and demand gulf is beginning to abate. Mr McIntyre said while demand was tracking higher than pre-pandemic levels, inventory on Carsales was edging closer to what it was before Covid-19 struck.

“You’re seeing your new car supply become less of an issue. It’s still an issue in some parts of the market with particular makes and models, but it’s becoming more normalised. “Inventory levels across the car sale site are getting back to closer to pre-pandemic levels. We’re still a little bit below it, but are getting back towards those levels.

“The time it’s taking to sell a car on the site is becoming closer to pre-pandemic levels as well. It’s still a bit faster, but it’s becoming more normalised as more inventory gets onto the site and there’s more choice for consumers.”

But Mr McIntyre says if credit becomes harder to get, it will start to sway buying habits.

“You may see consumers substituting a brand-new car for a used car, or rather buy the $40,000 car, they buy the $30,000 car, but people tend to buy and sell cars for a whole bunch of different reasons.

“But what we’ve seen at the moment doesn’t suggest to us that there’s a change in consumer buying as a result of interest rate increases that we’ve seen so far.”

Breaking down Carsales’s Australian revenue, dealer listings jumped 10 per cent, while private seller posts delivered record revenue growth of 39 per cent.

“Underlying automotive market conditions are buoyant. We expect to deliver solid growth in dealer revenue in FY23 supported by increased penetration of premium products including depth and dealer finance along with yield increases,” the company said.

During the half year to December 31, Carsales bought 51 per cent of North American company Trader Interactive it did not own to pursue opportunities in the lifestyle sector. To seal the deal, it completed a $1.2bn equity raising, and increased its debt from $900m to $1.4bn.

Trader Interactive is based in Virginia and provides inventory management, advertising strategies and marketing support services.

Stripping out the acquisition, Carsales’s overall adjusted net profit jumped 37 per cent to $121.8m. Revenue also soared 37 per cent to $331.8m.

Carsales first acquired a stake in the company in May 2021 in a move to diversify away from its core classified business. 51 per cent of Trader Interactive in the US, and are already executing on our growth initiatives in those attractive markets.”

Across its international business, its Americas division’s EBITDA rose 27 per cent to $53.2m, while revenue firmed 21 per cent to $98.3m. Its Asian operations delivered a 7 per cent lift in EBITDA to $22.7m off $47.1m revenue.

“Our Korean and Brazilian businesses delivered outstanding performance, with positive operating metrics and continued delivery of key products and services further enhancing our market position,” Mr McIntyre said.

Overall, it is expecting to deliver “good growth” in the second half of the year, including continuing to expand its EBITDA margin.

Carsales will pay an interim dividend of 28.5c a share, full franked, on April 18.

UBS Tom Beadle analyst said while Carsales’s outlook remained unchanged, its private listings result beat consensus estimates.

“The highlight was a 12 per cent beat in private revenues, with Carsales noting record private seller ad volumes, including market share gains, and higher yield from dynamic pricing,” Mr Beadle said.

“Dealers strong performance demonstrated the resilient demand for used cars.”

Carsales shares closed 0.6 per cent higher at $22.68 on Monday in a lower market.