New AADA CEO James Voortman has urged Dealers to work together, not just with each other, but with OEMs and governments, to restore a focus on profitability in dealerships.
Speaking at the 2019 AADA National Dealer Convention, Mr Voortman said the focus in recent years on volume of sales rather than profitability had eroded margins and must be reversed.
“As volumes of new car sales have grown in recent years, Dealer margins and profitability have eroded. The strong focus on new car volumes driven by incentive programs are well-documented, and as an industry we have always been alert to the problem of margin compression. But the absolute need to reverse it during these times is very strong,” he said.
“Dealers now simply need to work together to address this. Putting the margin back in the middle, restoring profitability, reversing margin compression – these are all discussions we need to be having with our OEM partners, because the only true partnership is one in which all parties benefit.”
Mr Voortman said he had been encouraged by recent statements from prominent people within the industry.
“Recently, Nissan’s global chief executive has spoken about the need to focus on profitability over volume. In the UK, Honda has announced a restructure that will see the removal of volume-driven targets, and an increased emphasis on throughput through the dealership. And most recently in an Australian context, I was encouraged to hear from (Jaguar Land Rover Australia managing director) Mark Cameron that it’s absolutely critical that we return our focus to profitability rather than volume.”
The second area of concern Mr Voortman outlined related to the regulatory framework under which Dealers operate. He highlighted the ‘setback’ of the Federal Government accepting the Royal Commission into Banking’s recommendation that Point of Sale exemption be abolished, and rejected “the continued unwelcome intrusion of state governments into our industry, with the Luxury Car Tax levied by the Victorian State Government”.
“Importantly, through all of these developments, AADA has been there, striving to be a credible, visible and influential industry association that new car Dealers deserve and can depend on,” he said.
“When we gathered 12 months ago, the market downturn was well underway, and it has persisted for the 12 months since then. The slide in sales is somewhat of a global phenomenon, but in Australia there are some unique factors that have played a relevant part. The very tight credit market, the drought in parts of Australia, constraints on supply due to a number of factors, all of these have played a part. And while the AADA cannot change market forces, we can shine a light on the industry, and advocate for a better industry.
“There are a host of policy issues that the AADA will be working on in the coming 12 months.”
Automotive Code of Conduct
The Automotive Code of Conduct is the major policy issue with which AADA is concerned, and Mr Voortman said much progress had been made in the last 12 months since the Labor Opposition announced its support for the policy at the 2018 AADA National Dealer Convention, which was followed some months later by the Government matching that commitment.
“However, the devil is in the detail, and we’re now at a stage where we’re working with the Government to nut out what that Automotive Code will look like,” he said.
“However, we know the exact elements that have to be in it. As we see it, it needs to include a full and direct link between the investment sought by an OEM and the tenure offered to a Dealer. It also needs to provide a management framework for ACL (Australian Consumer Law) claims. It needs better dispute resolution mechanisms, better protections for Dealers exiting the network, better protections against unfair contract terms, and leads to our Dealers to collectively bargain with their OEM partners.”
Mr Voortman also reiterated the importance to the industry of finance and insurance, and called for certainty from government on the matter.
“We need decision-makers in Canberra to realise that finance and insurance is an important part of Dealer profitability, and constantly changing the rules not only undermines our ability to make money but our ability to service our customers,” he said.
“The recommendation to abolish the point of sale exemption is an example of a policy which has been developed to fix a problem that does not exist. According to the Royal Commission, they’ll tell you that Dealers do not operate under responsible lending laws. We know in practice that we do. We do so because we have agreements with finance providers that compel us to operate under those circumstances. Forcing Dealers to obtain licenses will merely create a double licensing regime, adding to the regulatory costs in the dealership, and potentially restricting competition.”
Another area of concern was taxation, with the Queensland and Victorian Governments both introducing Luxury Cars Taxes in the past 12 to 18 months.
“Anyone who’s worked in this industry in the past 20 years will know that governments – both state and federal – see our industry as a bit of a cash cow. Car Dealers are some of the biggest tax collectors in this country on behalf of government, but the situation has become clearly out of control,” Mr Voortman said.
“The fact is that new cars are safer, more fuel efficient, and they’re more environmentally-friendly than the older cars on the road. We should be encouraging people to purchase these vehicles, not applying punitive taxation to discourage them from doing so.”
Mr Voortman also called on Dealers to be more active in better promoting the industry.
“The car Dealer does suffer, unfairly in my view, from reputation issues. However, Dealers bring a host of societal benefits to this country. We generate significant economic activity, we employ tens of thousands of Australians, including many apprentices, and all over Australia – not only in the cities, in the country and the regions. These benefits extend to the products we sell. We play a major role in servicing and repairing the nation’s fleet and keeping it safe, and an excellent example of that is the Takata airbag recall, which would not have been possible without the established network of Dealers that we have in this country.
“I want to encourage each and every one of you to do as good a job as you can about promoting our industry, whether it’s to future employees, to politicians, or to the general public. I encourage each and every one of you to visit your local Member of Parliament, or better yet, ask them to visit you in your dealership, so they can see what a sophisticated business you run, and what an important part of the community it is. Explain to them the benefits, and use out Dealernomics tool. Let them know that the decisions they are making have serious effects on the businesses, the customers you have and your employees.”