Ute-gate, Interest Rates and a Waste of Angst!

By sheer coincidence, the day Ute-gate is being hotly debated in Parliament, the Australian Bureau of Statistics (ABS) released the latest date on new motor vehicle sales which show the best outcome in almost a year and a half.

Ute-gate involves OzCar which was introduced in January because of the Global Financial Crisis. In December, the Treasurer said OzCar was " to provide liquidity to car dealer financiers who have encountered financing difficulties as a result of the global financial crisis."

Yet the slowdown in new motor vehicle sales had already began to abate three months earlier in September when the Reserve Bank began to reverse six years of rate rises with the first rate cut on the 3rd September, two weeks before the Global Financial Crisis (GFC) began.

This again shows that monetary policy (interest rates) was more important for the economy's performance than the GFC.

Not only had the rate of deterioration began to improve from September, the ABS announced that in May, after sixteen months of falling, the first increase in the trend measure of total new motor vehicle sales was recorded. New passenger car sales have recorded positive seasonally adjusted growth for the last two successive months and in four of the past six months.

The irony about the OzCar scheme was that the Motor Vehicle industry had already made a U-turn towards recovery before it was created. This could have sorted a lot of angst between Messrs, Rudd, Swan and Turnbull.

But it's good to see the GFC was not wasted. Policymakers have used it as an excuse to do things they could not have otherwise done. When the GFC erupted in mid-September last year it caused the greatest stimulation to the economy since World War II, such that it curtailed the economic downturn and prevented a recession.