SUVs remain in demand ... Toyota Kluger, Holden Adventra, and Ford Territory. PHOTO Neil Newitt

It's not just iron ore that's booming in Port Hedland. SUV sales are through the roof. Photo: Neil Newitt

In Port Hedland, 50 mechanics work through the night at Pilbara Motor Group, customising new sport-utility vehicles for cash-rich miners, defying assertions that Australia's commodities boom is over.

SUVs have become so popular that they account for nine out of 10 cars sold in Pilbara Motor's dealerships. Nationwide, a third of the passenger vehicles sold are SUVs, more than three times their share in the US or Europe.

The sales surge indicates that Australian consumers have yet to run out of money earned during the country's commodity-driven economic boom, even as prices of coal and iron ore fall, according to Phil O'Donaghoe, an economist at Deutsche Bank AG in Sydney. That stands in contrast to concerns voiced by Resources Minister Martin Ferguson, who has said the boom is coming to an end.

"Disposable incomes are healthier than some of the other data is telling us," Mr O'Donaghoe says. "There's a disconnect between people's perception of their finances and their ability to buy things."

Sales of the Ford Territory, Toyota RAV4, Chrysler Jeep and other SUVs rose 50 per cent in June from a year earlier and made up a record 34 per cent of passenger vehicles sold in the first half of this year.

That compares with a 10 per cent market share in the US over the same period and 7.7 per cent in the European Union's core 15 economies during the first eight months of 2010, the most recent period for which data is available.

Positive sign

The willingness of consumers to buy SUVs is a positive sign for an economy hit by a 25 per cent fall this year in the price of iron ore, Australia's largest export, says Saul Eslake, chief economist at Bank of America Merrill Lynch in Sydney.

The SUV sales boom "does seem to sit oddly with other stories about people struggling with the cost of living and cutting back on discretionary spending," Mr Eslake says.

In Port Hedland ships line up to export about 250 million tonnes of ore each year. Car sales in the town, where the average maximum temperature is above 35 degrees for six months of the year, are thriving.

The detailing workshop at Pilbara Motors, which sells Toyotas and Nissans, is open 24 hours a day, seven days a week to meet demand from customers in the remote town, closer to Singapore than Sydney and an 18-hour drive from Perth.

Higher incomes

"Mining's got a lot to do with it," sales manager Shane Tomerini says. "People earn a good dollar in the mining industry so they can buy quite expensive motor cars."

Buyers, many of them employees and contractors of BHP Billiton, want a vehicle that can take them over harsh roads to remote outback gorges and Indian Ocean beaches, he said. Workers in the sector earn an average of $118,000 annually, more than double the national average of $55,000.

The economic benefits of the commodities boom are fading, Resources Minister Ferguson said last month, as growth slows in China, the biggest buyer of Australian resources.

"The easy earnings of high prices are now gone," the minister said. "We know we have to work hard to maintain our competitiveness internationally."

Chinese property

Mr Ferguson isn't alone in his view that Australia faces tougher times as mining weakens. Hedge-fund manager Jim Chanos expects slumping Chinese property markets to hit Australia and Brazil. Ross Garnaut, an adviser to the Australian government, said living standards may fall as the boom falters. Bill Evans, chief economist at Westpac Banking Corp., predicts household spending will shrink.

BHP warned last month that China's iron ore demand has slowed by more than half. And Australia's third-biggest iron ore producer, Fortescue Metals, said September 4 that it would defer $1.6 billion of spending due this year.

Adam Alexander, a Goldman Sachs analyst in Melbourne, says monthly SUV sales data can be an early warning of the ripples from such events. He has been tracking the statistics for the past three years to get an early read on consumer spending in Western Australia, the biggest beneficiary of the country's mining boom.

A weak performance at Crown's Burswood casino in Perth last year was foreshadowed by lacklustre local SUV deliveries, he says, and rising SUV sales the following year presaged a rebound for the casino.

Falcon slides

"If you look at Western Australia, SUV sales are off the charts," indicating the slowdown has yet to materialise, Mr Alexander says.

Some of the demand for SUVs has come at the expense of other vehicles. Despite the continuing strength of the Australian dollar, which has made imports cheaper, passenger car sales are down 11 per cent from their 2007 peak, to about 560,000 over the past 12 months.

Sales of the Ford Falcon fell 25 per cent in the first six months of this year, according to Bob Graziano, president of Ford's Australian division. So Ford is reconfiguring its plants in Melbourne and Geelong to make fewer Falcons and boost production of the Territory, Australia's top-selling SUV.

"People are moving into SUVs where previously they would have used a traditional car," he says. "You may never go off-road with these things, but you just feel that you could."

Future slowdown

While there's little evidence of a slowdown today, Mr Graziano says things aren't likely to be quite as sweet as they have been in the past year or so.

An August poll by Roy Morgan Research indicated that 589,000 Australians intend to buy a car in the next 12 months, a 6 per cent decline from a month earlier and 4.4 per cent below the long-term average.

"We think it's going to keep growing," he says, though more slowly than the 20 per cent-plus pace of the past year. "You're not going to be able to sustain that rate."

Bloomberg