But while the outlook for the auto manufacturing industry might be bleak, it’s a very different story on the automotive retail front.
Pitcher Partners’ 2016 Key Performance Indicators for Automotive Retailers report showed that the Australian new car market should continue to experience strong sales. In 2015, official sales figures grew 3.8 per cent on 2014 figures, with total units sold at 1.155 million.
In 2016, we’re tipping that new vehicle sales will be roughly stable around the 1.16 million mark, in line with VFACTS forecasts.
There are several factors driving this. Interest rates fell yet again at the beginning of May, and some market observers are considering the possibility of another rate cut in the next 12-18 months. We’ve already seen the Australian dollar fall in response to May’s rate cut, and it’s expected to fall even further in the coming months.
This is good news for importers and dealers, and with Australia’s domestic manufacturing plants shutting up shop, it’s even better news for consumers.
New vehicle affordability is already at record highs, and if dealers are able to pass on cuts in the cost of stock acquisition, we could be set to see affordability climb even higher.
In 2015, new car sales were driven by high sales volumes among Toyota and Mazda – with Mazda entirely imported and Toyota shuttering its domestic plants by 2017, we’d expect to see continued growth in these areas. Australian domestic-manufactured vehicles only made up 8.4% of sales in 2015, down from 9.0% in 2014, and as manufacturing moves offshore this will continue to fall.
Strong employment numbers should also contribute to a continued picture of health for the automotive industry; as long as employment numbers and consumer confidence remain steady and relatively high, we should see the auto retail market continuing to strengthen.
The auto market has been characterised by strong competition and choice – giving consumers the ability to access a range of high quality options when it comes to new car purchases. This is true across both the luxury and non-luxury markets.
Low interest rates, high employment and high consumer confidence should result in steady or marginally increased dealer profitability in 2016. Dealer profitability in 2015 rose slightly to 2.2% from 1.9%, and we would expect that trend to continue.
However, there are several issues that could negatively impact profitability, and dealers need to be on the lookout for potential regulatory changes that could compromise their position.
Pre-election, the federal government had flagged parallel importation reform as being on its agenda. While we’ll have to wait and see what the election brings, planned changes to the Motor Vehicles Standards Act 1989 could effectively allow individuals to privately import vehicles from another country, as long as it has comparable standards to Australia.
This poses obvious risks to dealerships’ profitability in Australia, but consumers should also be made aware of the issues surrounding servicing and resale value of privately imported vehicles.
Dealers also need to be aware of the ongoing ASIC review of financing and insurance arrangements. ASIC has made some preliminary investigation into add-on insurance products and flexible commission insurance in the vehicle financing industry. It will be particularly necessary for the financing and insurance departments of dealerships to be aware of further developments in this area.
As we move into eight weeks of election campaign, the automotive retail industry should be on the lookout for policies from both major parties that could impact directly or indirectly on sales and profitability. But for the moment at least, the future looks positive.