The costly car choice we need to rethink

January 8, 2024 -- 5.00amJanuary 8, 2024 -- 5.00amNormal text sizeLarger text sizeVery large text size

Petrol costs have surged in the past few years, hitting the hip pockets of families cruising around in the booming cohort of sport utility vehicles. But there's no hitting the brakes when it comes to their uptake. Once the hallmark of soccer mums carting kids around to weekend games, more than 55 per cent of new cars sales in the past year were SUVs.

Up from roughly a quarter in 2018, the proportion has steadily climbed every year according to data from the Federal Chamber of Automotive Industries. Unshackled from the constraints of supply chain issues, which slowed the delivery of cars during the pandemic, Australians hit top gear last year. More than 1.2 million vehicles were delivered, beating the previous record of 1.18 million in 2017.

Australia's 10 top-selling cars in 2023 were utes and SUVs.Credit: Joe Armao

And we're picking up bigger cars. Nearly four out five car sales were SUVs or light commercial vehicles, while passenger vehicles including sedans and hatchbacks accounted for roughly 17 per cent of cars sold. The trusty Toyota Corolla and Hyundai i30, which made the list of top 10 cars sold in 2022, have been driven off the list.

In 2023, the top three were utes, and the rest were SUVs. An empirical glance at the population of soccer mums suggests no drastic increases. At least, not enough to explain why the majority of sales in 2023 were for SUVs.

So, why are more people opting for fuel-thirsty giants like SUVs and utes? Price is often one of the biggest considerations. Given bigger cars tend to be more expensive, and the price of some of the most popular SUV models [1] has continued to climb recently, it might seem strange that demand has stayed strong amid rising cost pressures.

But several things to note here. Firstly, the majority of new car buyers are Baby Boomers [2] who are more likely to have paid off their mortgage and are generally less sensitive to - if not benefiting from - rising interest rates. They may be less sensitive to price increases.

Secondly, while the price of most cars has soared over the past few years (which carmakers justify as a reflection of supply chain issues and rising input costs), some of the biggest proportionate price increases globally have reportedly been for entry-level lighter car models [3] such as the Mazda2 and Toyota Yaris. Then, there's the safety factor, which has contributed to some of the disproportionate price movements but is also a key consideration in its own right.

Bigger is not always better. But when it comes to physics, there's been no change for some centuries on the law that force equals mass times acceleration.

All other things equal, a bigger car will cause more damage and hold up better against a smaller car. As more people hit the road with their heavyweight SUVs and utes, there's more chance of coming out worse-off in a crash if you're not driving one yourself.

As more heavyweight SUVs and utes hit the road, there's a greater chance of coming out worse-off in a crash if you're not driving one yourself.Credit: Australasian New Car Assessment Program Small cars can be as safe [4] as a bigger one - but generally, only if we're comparing a brand-new small car with a larger car which is one or two generations old.

A large SUV is among the safest bets [5] in most crash types. Safety features, modern engineering and innovative technologies can put a smaller car on par with bigger cars, but can be an additional cost for carmakers [6], which might explain some of the higher proportionate price rises for smaller cars. While cars have generally been increasing in size across the world, the boom in popularity of big models such as utes in Australia can also be pinned to tax policies including those introduced and ramped up during periods of economic downturn [7].

The concession allowing small businesses to write off vehicles for tax purposes was born under the Rudd government in the wake of the global financial crisis. Then the maximum write-off amount was increased to £150,000 by the Morrison government during the pandemic. That's been pared back to assets priced up to £20,000 by the Albanese government, but only since September last year, meaning there would have been an incentive for upgrading to a larger (pricier) car before then.

Certain cars, including utes and four-wheel drives with capacity to carry more than one tonne, are also exempt from fringe benefits tax as long as there is "limited personal use". Behind the growth of big cars, there is, of course, changing preferences. There's probably an element of keeping up with the Joneses as increasing numbers of SUVs and utes dominate the road.

But these rugged cars also come with the functionality (and the image) of adventure and the simple, enticing proposition of more space: for kids, pets, legs and more. Despite concern over the death of the great Australian road trip, Aussies have continued to traverse the country's vast landscapes. And increasing numbers of people are making those trips using personal and rented vehicles [8].

From 2022 to 2023, the number of people relying on self-driven vehicles increased from roughly 5.7 million to 6.3 million for interstate trips and from 21 million to 22.6 million for intrastate trips. But there are numerous costs, both personal and societal, attached to bigger cars. While some of the top 10 sold cars such as the RAV4 come in hybrid versions, and the Tesla Model Y also made the list, only about 15 per cent of cars sold in 2023 were hybrid or electric.

Not only does it cost Australians more to feed fuel-thirsty cars such as SUVs and utes, but it comes at a notable cost to the environment, drivers of smaller cars and pedestrians. Both pedestrians and those driving smaller cars are more likely to suffer serious and fatal injuries [9] when they're involved in a collision with a heavier vehicle. And the race to get our emissions down is suffering as more Australians choose giant cars.

In 2022, passenger cars and light commercial vehicles constituted about 12 per cent of the country's emissions [10]. While it's tempting to stray off-road, we need to make sure costs of fuel-guzzling SUVs and utes, and the benefits of electric vehicles, are reflected in the actual prices paid by consumers. The tax concession on vehicles purchased for business purposes should be higher for electric or hybrid vehicles, and the Australian Tax Office should more rigorously police personal usage of heavier cars.

The Australian government also needs to crack the whip on introducing its overdue fuel efficiency standard, which would place an annual cap on the emissions output for new cars sold in the country and look at making public transport more affordable and accessible. Preferences take time to change - time we don't have if we are to meet our emissions targets. From backyards to beer consumption, Australians love going big, but it's time to take our feet off the accelerator when it comes to big cars and foot the bill.

Ross Gittins is on leave.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.[11]

Millie Muroi is a business reporter at The Sydney Morning Herald covering banks, financial services and markets.Connect via Twitter [13] or email [14].[12]

The costly car choice we need to rethink

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