In November 2016 the Victorian Automobile Chamber of Commerce (VACC), in conjunction with the state and territory Motor Trades Associations of Australia, conducted a national survey of over 1,000 automotive business members.

In a three-part series we will dissect the report, detailing the key findings, current state of play and recommendations for the future of our industry.

The 2016/17 Automotive Industry National Survey sampled all sectors of the automotive industry, collecting detailed information concerning the business environment, labour market, skill shortages and other key issues affecting automotive businesses.

The survey data, in conjunction with other data sources, formed a key input in the modelling of trends and projections for the automotive industry over the next three years.

The ‘Directions In Australia’s Automotive Industry’ report covers the size, scope, economic contribution, key trends and challenges shaping the direction of Australia’s automotive industry over the next few years. This will generate greater understanding and awareness of the industry beyond the era of passenger car manufacturing, including the broader impacts on the economy and society.

Business conditions

“Results obtained from the Automotive Industry National Survey indicate that most automotive businesses (39%) experienced variable business conditions during 2016,” the report says.

“On either side of this response were almost equal proportions of businesses reporting positive and below average business conditions (25% and 22% of respondents respectively).

“These responses were prevalent across most automotive sectors and jurisdictions, except for Western Australia where respondent ratings were equally highest for variable and below average business conditions. Western Australia also displayed the highest proportion of respondents encountering poor business conditions (13%) as shown in results by jurisdiction. Business conditions were recorded as being strongest in the Northern Territory and ACT.”

In what the VACC described as “a sign of cautious optimism”, the survey found that overall industry expectations are predominantly for mild growth over the next two years. This sentiment was displayed across all jurisdictions and most automotive sectors.

Trends impacting the industry

The report found that most automotive businesses are currently experiencing variable to positive business conditions. Western Australia has the highest proportion of businesses experiencing below average to poor business conditions

High performing automotive businesses are observed to employ strategies that sustain the growth and overall momentum of the business compared to under-performing businesses.
“The industry is forecast to be on a declining employment and business trajectory to 2018/19, due to the closure of car and component manufacturing and declines within the Motor Vehicle Retailing and Repair and Maintenance sectors,” the report says.
“Skill shortages are at their highest levels ever recorded, with a total shortage of 27,377 skilled personnel. This shortage is forecast to grow to 35,083 during 2017/18 before moderating to 31,202 in 2018/19.

Key reasons for skill shortages include: declining levels of new entrants into automotive trades, the poor quality of available labour and problems with attraction and retention of labour.

New vehicle sales are sensitive to changes in housing wealth and are forecast to grow linearly with growth in house prices.

The automotive industry will, in the next decade, undergo a process of transitional change greater than it has ever experienced.

The industry will face considerable disruption through the introduction of electric, autonomous and connected vehicles, along with changing patterns of car ownership and use. Over the coming decade, it is anticipated by many that the automotive industry will undergo a process of transitional change greater than anything it has ever experienced before. This change is expected to alter the structure, product and service delivery of the automotive industry, with few other industries forecast to encounter this level of disruption.

Positively performing businesses

One quarter of survey respondents reported positive business conditions during 2016, and this trend was displayed across all automotive sectors, except Bicycles. The trend was also distributed equally across metropolitan and regional areas and in all jurisdictions.

Light vehicle mechanical repair

Respondents reporting positive conditions in this sub-sector were consistently booked out for at least one week ahead or more during 2016. Strong customer focus and service was a key focal point for these businesses along with many other practices including:

• keeping staff abreast of vehicle technology trends through regular training to deliver a real alternative to dealership servicing and repairs
• following up with customers after the completion of work to make sure they are satisfied
• developing a strong repeat customer base and generating new business referrals through aggressive advertising, marketing and word of mouth recommendations
• the development of business plans, goals and strategies to improve business profitability
• conducting business management training for business owners and/or hiring of appropriately qualified managers to facilitate a transition of the business to a higher performing status
• diversification beyond vehicle mechanical repairs into other sectors or industries such as motorsport, automotive electrical services and tourism
• specialisation in European branded vehicles and technologies, and
• the relocation and expansion of businesses from ‘stale’ or ‘saturated’ business environments to new areas with extensive housing developments and growing populations.

Motor vehicle retailing

Within the Motor Vehicle Retailing sector, 17 per cent of survey respondents reported experiencing positive business conditions, and this was below the national average for all sectors. Whilst the volumes of new and used vehicle sales were reported as buoyant, intense competition and pressure from manufacturers to achieve sales targets was reported to have driven down margins for many new car Dealers. These claims are supported by ABS data that shows profit margins have consistently fallen over the last three years within the sector and are now amongst the lowest in the industry.

Motor vehicle and part sales

Reports of below average to poor business conditions within Motor Vehicle and Parts Wholesaling and Retailing sectors also displayed a strong regional bias. Weak economic conditions and associated consumer spending are cited as key factors by respondents along with:

• increased purchases of cheap vehicle parts over the internet by consumers
• lack of growth in vehicle fleet purchases by state governments
• reductions in new heavy vehicles sales, particularly in Western Australia due to a lack of new local infrastructure developments and major changes by ISUZU to their distribution network
• falling house prices, high unemployment and a lack of stimulation of the economy by government to support consumer confidence and sales in WA
• regional population decline across many states, and
• manufacturer pressures for Dealers to move stock resulting in lower Dealer margins and profitability. Also, claims that there are too many vehicle brands and models vying for a share of a small market, resulting in greater vehicle discounting by Dealers and lower profits.

Conclusions – high versus under-performing businesses

“Inevitably, local economic conditions play a key role in affecting the performance of individual businesses,” the report says.

“A decade ago, Western Australia and other mining and resource states were outstripping those on the eastern seaboard in what was termed a ‘two-speed economy’. This situation has now reversed, with eastern states being buoyed by a booming housing market and infrastructure works, and previously buoyant mining states are suffering economically.

“However, despite differences in prevailing economic conditions across states and regions, the survey results indicate a distinct disparity in the performance of individual businesses that suggest some business owners are better equipped than others to run their business.”

The VACC observed that successful automotive businesses in all locations are proactive, whether it be investing in technology, staff training, finding alternative sources of revenue through diversification, or in general commercial and business acumen.

“Business growth is a deliberate and planned strategy amongst this cohort. By contrast, businesses that are struggling tend to attribute their predicament on economic and other circumstances that are considered beyond their control. Adaptation to an ever-changing business environment in a timely and efficient manner is critically important for the future of all businesses in the automotive industry.

“Encouragingly, the survey results also reveal that many business operators that are presently struggling are considering measures to improve their performance. These include intentions to commit greater resources towards marketing, as well as diversifying and restructuring their businesses. For many, it is these intended actions that instil a sense of optimism for the future and characterise their expectations of mild growth over the next two years.”

Social contribution – urban planning and growth

“It is undeniable that the contribution of the automotive industry towards national employment and economic growth is significant,” the report says.

“A lesser known but equally important contribution is the fact that over the past 100 years, the advancement of the automobile has helped shape all aspects of Australian society and continues to influence the development of new communities today.

“Australia is essentially a ‘car nation’, where driving remains the preferred form of mobility for the majority of the population. Australian Bureau of Statistics (ABS) data shows that 71 per cent of Australians travel to work or study by passenger vehicle as a passenger or a driver.”

The VACC found that just 16 per cent of Australians utilise public transport, while only 4 per cent walk and 2 per cent cycle. The majority (88%) of Australians also use a passenger vehicle to get to places other than work, such as to go shopping or visiting family and friends.

“This dominance of the motor vehicle as the preferred method of transport continues to shape the development of suburbia today, influencing the expansion of road and land use in both urban and regional areas to accommodate growing populations and commerce,” the report says.

“For most people, the social independence, comfort and convenience in mobility afforded by motor vehicles will continue to influence their daily lives well into the foreseeable future.”