Heat goes on already-battered private equity model amid underpayment claims at electronics chain.

The already poor reputation of private equity has taken another battering.

Before Christmas we chronicled the woes of electronics chain Dick Smith after its private equity owners floated it on the share market and pocketed A$370 million in profits. Shareholders were left with stock worth a fraction of what they'd paid for it after private equity firm Anchorage Partners sold out.

Since then things have taken a turn for the worse with the Australian and New Zealand chain falling into receivership in early January, as anyone unlucky enough to receive a now worthless Dick Smith gift voucher for Christmas will know.

Now it emerges the company is being investigated by the workplace regulator about concerns it underpaid some of its 3300 staff. The alleged underpayments relate to about A$2 million worth of holiday pay entitlements and weren't deliberate, but the fact that they stretch back to the time when Anchorage Partners owned the business could be another black mark against private equity.

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Under the private equity model, investors buy a company using a lot of bank debt, turn it around then sell it a few years later for vast profits, usually on the stock market. But some of these businesses subsequently struggle or fail, leaving investors with losses and workers without jobs.

All this bad news has prompted a Senate inquiry into Dick Smith and other private equity failures. There are plans to put the managers of Anchorage on the stand; watching their former employers squirm might be some small consolation for Dick Smith employees now out of work.

The private equity lobby has already mounted a rearguard action against growing public disquiet about its role. On Friday the Australian Private Equity and Venture Capital Association pointed out that private equity-backed initial public offerings have comprised 8 of the top 10 post-IPO performers since 2013.

All of the bad publicity has obscured the important role of private equity in Australia's capital markets and economy.

When private equity functions properly it performs a valuable role.

Watching their former employers squirm might at least be some small consolation for Dick Smith employees now out of work.

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It can be hard to turn around a failing business when it's listed on the share market, because investors and analysts want instant results. Making tough decisions that hit profits for the next year or two, but build a stronger business, generally isn't possible.

But outside of the public glare of the listed equity markets and with patient owners, private equity-owned firms can take the time to make the necessary improvements to a struggling business.

And there's a large segment of foreign investors who prefer to invest in privately held businesses rather than those on the stock market, giving Australia another source of much-needed foreign capital.

Malcolm Turnbull is a prime minister who understands business and capital markets and his government won't implement a knee-jerk crackdown on private equity. But the sector needs to be careful. Too many more Dick Smith-style debacles and it will find its activities curtailed, either at the hands of Turnbull or someone else.

Motoring ahead

Last year was a record year for new car sales in Australia and if January sales are any indication this year will continue in the same vein.

Some 1,155,408 new passenger cars, SUVs and commercial vehicles rolled out of the car lot, up nearly 4 per cent on the previous year.

What's even more surprising is the mixture of cars. More Mercedes-Benz passenger vehicles were bought than Fords. In fact, luxury vehicle sales are growing at double digit rates in Australia and sales of Ferrari, Maserati, Lamborghini, Aston Martin and Jaguar also surged.

January sales were also strong - up 2.7 per cent on the year before.

All of this presents a puzzle.

We keep hearing lots of doom and gloom about the Australian economy. The economy performed weakly last year and this year won't be any better, forecasters say. On Friday, the Reserve Bank of Australia forecast the economy to grow a tepid 2.5 per cent to 3.5 per cent in the coming year.

Where then is all the money for these cars coming from?

It seems Australians are reverting to bad habits.

The latest data on household savings suggests they are starting to raid the piggy bank once again.

In the 1960s and 1970s Australians on average saved around 15 cents in every dollar earned. From the mid-1980s when they decided it would be more fun to be yuppies and entrepreneurs, savings rates plunged and eventually hit zero in the early 2000s. Then the Global Financial Crisis gave Australians a terrible fright and they collectively decided that it was probably best to spend less than they earned so the savings rate climbed back above 10 per cent.

But over the past three years the savings rate has started to dip again. Worryingly for the nation's financial security, it seems Australians are starting to put their lifestyles on the credit card again.