“I SHALL BE RELEASED…”

I Shall Be Released, is a gospel-based song written by Bob Dylan in 1967 and recorded by him and literally dozens of other performers over the last four decades. The most famous version is featured in Martin Scorsese’s movie The Last Waltz. In that gritty documentary Scorsese expertly showcases the final performances of the legendary Canadian-American trail-blazing rock group The Band – Dylan’s frequent collaborators.

(Here’s the link for the few true believers out there – I know all three of you!).

(You can see Sir Bob at his shambolic best performing live with Robbie Robertson, Levon Helm, Rick Danko, et al)

The lyric seemed to epitomise the sentiments of the many key players in the new car business that I spoke to as the March quarter VFACTS numbers printed out on the computer.

March month finished at 100,005 units, some 22.4% ahead of the same month last year. The March quarter finished at 263,648, a full 13% up on the dreary 2020 March quarter.

Halleluiah! I shall be released!

March was indeed great news, even if many Dealers were faced with persistent supply issues that forced up order banks to worryingly high levels – consumers are definitely into immediate gratification post-lockdown. And whoever burned down that computer chip factory in Japan didn’t do us any favours – but hey, you know the old story about one truck load too many.

Enjoy!

As encouraging as that March quarter was, here’s cause for pause:

VFACTS Q1 PRIOR FIVE YEARS

Q1 2020233,361
Q1 2019268,538
Q1 2018291,538
Q1 2017388,870
Q1 2016285,328

If we discount the terrible COVID-impacted result in Q1 CY2020, the 2021 March quarter was actually lower than the four prior ‘normal’ March quarters (whatever ‘normal’ means).

A question that comes to mind is whether or not we are going to experience a period of persistently lower sales post-COVID than we’ve been accustomed to in prior years.

Humm…let’s hope this doesn’t signal COVID-normal. Especially with JobKeeper ending.

Perhaps keep the Bollinger on ice for now?

But let’s look at the Top 10 brands and Top 20 nameplates (below).

Some obvious highlights:

  • Toyota outsold #2 Mazda by over 10 thousand units last month.
  • In fact, Toyota handily outsold #2 (Mazda) and #3 (Hyundai) combined by 3,682 units – that’s what I call a powerhouse brand.
  • And, in Q1 CY2021 Toyota sold 56,513; the next three brands – Mazda, Hyundai and Mitsubishi sold 64,481. That’s over 121 thousand units for the top four brands or just under half (47%) of the total light passenger market – more on this later.

And here’s a couple of other notables that pop on that top ten list…

MG again made it into 10th position with 3,303 sales for the month, just 55 units behind VW.

  • MG is also in 10th position YTD and looks set to climb further up the honour board with its compelling combination of quality and value.
  • Ford had a great month and came in 5th with 5,977 units, up 23.1% on February. Ranger accounted for just over 62% of Ford’s sales for the month. I guess a few ships arrived …?
  • Some regular top ten performers are MIA and likely will never return to that league – we all know who they are and so do they.
  • What about overall market structure?

Well, consider these numbers

Top Ten VolumeTotal Indent Volume
(excl. hvy. trucks)
Top Ten % of TLtV
FY 2018810,4381,111,68572.9%
FY 2019770,0401,024,89875.1%
FY 2020667,805882,40175.7%
Q1CY 2021193,985257,02875.5%

Between 2018 and Q1 2021, the top ten improved their combined share of light vehicle sales by about 2.5 percentage points. Actually, if we include Mercedes Benz passenger sales (11th at 8,134), the percentage climbs to 78.6%. So this tells us that those brands now consistently take over three quarters of all sales, and on present trends, it’s growing.
And some in the industry debate have tried to tell us there’s no power imbalance here?

Pleeeese…!

So, if you don’t have a top ten franchise you’re kinda swimming in the shallow end of the pool. Not to say there’s no profit to be made in that end and a pure prestige/luxury business strategy might work if the costs can be aligned. Composite results seem to suggest to me that having a couple of top ten volume franchises in your portfolio might lead to more relaxing Friday nights.

Fish where the fish are – right? And obviously, you need to pay attention to trends.

MG franchise anyone?

There’s actually 15 bands that sold less than 200 cars last year. Even allowing for the exotics, that’s an awful lot of clutter chasing a low number of opportunities. And many of these brands want the full enchilada in terms of facilities.

Income statement…? In many cases there isn’t one.

Given that every erudite car guru in the media (as well as some complete drips) appear to have decided that plug-in electric vehicles are needed to save the human species, allow me to share a couple of BEV numbers with you. We’ll ignore hybrids because, well…they’re just not green enough.

Last year, plug-in BEV sales in Australia totalled 1,769. In 2019 the total was 1,523. I know, I know – range anxiety, cost, infrastructure, battery life, energy density – and evil governments that won’t dole out buckets of tax money to the trail-blazers.

But – BEV sales for Q1CY2021 totalled 969, an increase of 223% over Q1 CY2020.

This suggests that Aussies will put a record number BEVs on our roads this year. Not in Dubbo or Broome or Mt Isa or on the Oodnadatta-Alice Springs road to Finke River of course, but definitely in South Yarra and Toorak and Mosman and Point Piper and Peppermint Grove.

And you also need to remember that Elon (Musk, that is) does not allow anyone anywhere in the world to count his sales except …. well, Elon of course. However, Elon’s acolytes at the Electric Vehicle Council reckon that the run rate for pure BEVs in Oz is about 0.6% of the TIV – and we believe them because they are in the inner sanctum of the Church of Electricity (motto: Feel The Power). Let’s be generous and suggest that Q1CY2021 BEV sales were indeed around 1,530 including Elon’s special babies.

At that rate the year might top out at 7-8 thousand BEVs. There are about 19 million fossil fuel vehicles operating in Australia. All I’ll say is that even with Albo’s generous assistance it’s a long way to the nirvana of net zero carbon by 2030 – or 2050 for that matter.

No one, including Elon the Great, has yet solved the persistent issues of lack of EV charging infrastructure, lack of price competitiveness and lack of reliable range.

Before you throw your vegan falafels at me, I love green and so do our AADA Dealers. But we only make money if we can sell something to someone who wants to buy it. The anguished consistent rent-seeking from the EV lobby is understandable. The real solution however is to manufacture BEVs that consumers can love and can afford. They’re coming but we’re not there yet.

If doling out globs of tax money to wealthy buyers of BEVs seems like absurd extreme reverse socialism to you, then well done! Because it is. And bear in mind that Australia’s public debt is forecast to grow (post-COVID) as a percentage of GDP at the fastest rate of any of the 35 developed nations tracked by the IMF.

It’s. Not. Sustainable. – Get it?

So, do we have a genuine long-term automotive industry recovery on our hands? I haven’t got a clue. The best we can say is we have to wait in breathless anticipation for a few more months of data to draw meaningful long trajectory conclusions – but the signs are good.
It’s the anticipation that gets to you. It’s said the famous American comedian Groucho Marx once went to a cricket match. At lunch after watching the morning session he said to his English host:

“This is great. When does it start?”

What he said …
Good luck and good selling.

This article is written by David Blackhall, Industry Consultant, Raglan Ridge Advisory.

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