It’s a Game Played in Two Halves1

THE MONTH

Following a robust June (110,000) July VFACTS was, as expected, much quieter at just over 84,000 reported sales. This reflects the usual pattern of lower demand after the financial year end. That said, June 2021 was up around 16% on the same month in 2020 – which had of course managed to catch the COVID virus (damn pesky thing!).

In fact, the average volume for July over the last decade is just under 87,000 units, so at 84,000, this was a respectably ‘normal’ July as this chart shows:

Remember too that this July we had to contend with:

The re-institution of shambolic, disconnected COVID restrictions across the country by nine (yes, nine!) independently minded governments – Federation? Never heard of it!

And supply constraints in certain popular brands, mainly as a result of a silicone chip factory burning down in Japan with resultant vehicle shortages (I’ve heard of ‘chip fires’ before but usually in fast food outlets).

I’m reliably informed that for most franchised new car Dealers these supply chain disruptions did help lift retained margins – silver linings and all that…

If you’re a Dealer who didn’t see a silver lining in the last couple of months, then it might be time to get under the hood a bit more often.

Only a suggestion…

And here’s a look at the top brands’ sales in July:

HERE’S SOMETHING FOR THE ANORAKS… LET’S LOOK AT THE HALVES

It’s difficult to find a documented original source for the absurdly obvious and profoundly inane comment about football being a game played in two halves2. But sometimes, cliches just fit – and that one definitely works for the car industry this year.

As Dealers, we certainly have everything to play for in 2H 2021.

At just under 304,000 units, Q2 CY 2021 was no barn-burner, but of course was strongly up on the weak COVID Q2 2020 – and in fact also ahead of Q2 CY 2019. The same comments apply to 1H CY 2021 – at 567,000 sales, not a record but better than the preceding two calendar years’ 1H results.

So, what does all that tell us about the level of sustained demand (or otherwise) we can expect in the July-December half? Frankly, I don’t have a clue other than to offer the thought that July VFACTs looked ‘normal’ – whatever that means.

Anyone who offers you a specific forecast number for this calendar year is either crazy brave – or just plain crazy.

Predict the course of COVID for the balance of the year? Impossible.

Predict what six state premiers, two territory chief ministers, one prime minister and their legions of wall-to-wall highly paid advisers will do in the next six months?

Nah…Let’s try something easier like understanding string theory or the Lorenz Transformations that enabled Einstein’s theory of special relativity3.

Luckily there is a group of professionals working day and night to come up with accurate forecasts of the level of sales during the balance of this year. They are the volume planning and programming executives that work for the OEMs. These experts are charged with calling the numbers that will drive the procurement of billions of dollars of material that will flood into assembly plants all over the world (not Australia of course!) to produce millions of cars.

Those. Poor. Bastards. Talk about a hiding to nothing…

If you push me hard enough, I’ll say not even these state premiers can stuff it up so badly that we won’t get to somewhere between 1-to-1.2 million sales in CY 2021.

There…that’s me out on a very shaky limb, but hey…roll the dice baby.

WINNERS AND LOSERS

The immensely gifted singer and musician David Bowie wrote a truckload of wonderful music but also, like most creative geniuses, did manage to produce the occasional stinker.

The song Winners and Losers which he wrote for the US punk artist Iggy Pop is in the latter category – my opinion only, but here’s a small sample of the lyrics:

Winners and losers, which one am I
Is it the same under the sky?
Black motorcycles and the will to survive
Losers and winners, low and high

Not exactly Bob Dylan, right? And way below his best Ziggy Stardust standards4.

Still, there were some interesting Winners and Losers in the league tables through July (see above table).

WINNERS

  • Toyota continues to dominate the market – daylight second, but perhaps we should mention Mazda although it does take extra strong binoculars to see them. Awesome consistency from the team at Aichi Prefecture at Toyota City, and ditto for the crew at Port Melbourne.
  • The Seoul Brothers were at it again – for the seven months through July 2021 ‘big bro’ Hyundai has a lead of only 600 units over ‘little bro’ Kia – and in fact, the little guy kicked sand in the big fella’s face for the second consecutive month. Outstanding!
  • Ford continued its stellar return to form moving into third place for the month and fourth place in the CYTD league, squeezing in between the Koreans and finishing only 244 units behind Hyundai through July CYTD. This is a tight tussle, so we’ll watch this one closely for the balance of the year. It could get almost as exciting as the Moffat-Bond 1-2 finish at Bathurst 1977…Wait…nah, it couldn’t, but a good contest, nonetheless.
  • OEMs from the People’s Communist Republic of China are really starting to make significant inroads into the Australian market with GWM and MG improving their volumes by 268% and 233% respectively over the same period last year. LDV also improved by 116%.
  • MG did what it’s been threatening to do for some time – it made it into 9th position for the month nudging Nissan back into 10th spot. MG is also in 9th position CYTD.
  • The top-selling Chinese brands have sold just under 41,000 units between them this year to date – with MG outselling the other two combined. And what a radical formula the Chinese are using – decent quality, loaded features and value-for-money pricing – who would have thought that old idea would work…huh? …
  • Drumbeats…footsteps…?
  • The luxury and prestige marques had mixed months with patchy supply issues driving some results according to those who know these things.

LOSERS…?

  • Well, we usually categorise any brand that is behind on the YTD gain/(loss) % vs the market average as a ‘loser’ – harsh I know but really, if you are not keeping pace with the market, you are in fact…? Go to the top of the class if you said ‘losing’…
  • However, looking at July CYTD, that seems a less useful measure when you consider that 14 light vehicle brands printed positive July Y-O-Y percentages yet failed to keep pace with the overall market gain of 26.1% – which hardly seems like losing.
  • BUT… there are six brands that reported negative Y-O-Y percentages for various reasons. Ugly as it is, we must call those brands losers – although I’m sure there are many mitigating circumstances.
  • Special mention for Honda in last place with a 38% Y-O-Y reduction and only 822 units for the month – a not-unexpected result given their moderated volume objectives. But an interesting question does hang in the air…How’s the agency thing going?
  • No, how’s it really going?

LESSONS IN THE TEA LEAVES?

What does all this mean for franchised new car Dealers attempting to maximise opportunities in the balance of the year?

Well, remembering that I know absolutely nothing (you have been warned!), here are some obvious (and maybe not so obvious) suggestions:

  • It’s an excellent idea to have a Toyota franchise in a large city or regional centre and Mazda as a back-up isn’t a bad idea either. Perhaps that bus has left the station, but keep your eyes peeled for those opportunities.
  • If you can’t grab one of those, then go Korean. K-Pop kids like Blackpink, Twice and Red Velvet5 know a thing or two! So do the Korean car makers.
  • Ford is having a stellar return to form having handed their former competitor (who cannot be named) a masterclass in brand management. Going Ford should be your Going Thing (yes, I am that old!).
  • If you haven’t got a Chinese franchise or two, try harder – you’ll need one. The trick is to know which one…Can’t help you there.
  • And we should talk about electricity (everybody is)…
    – Looking at the numbers, FCAI reckons we bought about 3657 BEVs and PHEVs in the six months through June. So, having one of these franchises right now will not set your income statement alight just yet – but it’s about the future (see below chart: Global BEV & PHEV Stock 2010-2020).
    – VFACTS also says we bought over 36,000 pure hybrids – which, as we all know, are not electric cars at all. They have a range-extender battery/electric motor combined with a fossil-fuel engine to give you better fuel consumption. That’s enough to be ‘green and electric’, apparently.
    – The other inconvenient complication is that VFACTs does not capture Teslas, but luckily, the Australian Bureau of Statistics does.
    – So, looking at the ABS July update we find that 23,000 ‘electric’ vehicles were registered by the various state registration branches – which is over 19,000 more than VFACTs can find – which presumably means that the rich people bought a whole lot of Teslas (Way to go Elon! Shoot the moon baby!).
    – At last count, over 30 new BEVs have been announced by leading OEMs and aspiring new Manufacturers for introduction in the next two years.
    – And if you think this is just me being ‘woke’, check out this chart:
    • So…the key point is that there are already about 10 million ‘electric’ cars operating globally if you count everything with an electric motor.
    • Even allowing for the green-washing associated with that data manipulation, it’s a fact that BEVs are out there in big numbers and are coming to Australia soon – so…could be wise to get on board.

    Just sayin’…

    We could endlessly discuss the next five months’ market possibilities but the big hand on the school yard clock tells me my time is up.

    As David Bowie sang in Space Oddity

    Ground Control to Major Tom
    Ground Control to Major Tom
    Take your protein pills
    and put your helmet on…

    Let’s strap in for the balance of the year – and fingers crossed for a smoother ride and safer landing than Major Tom.

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


    References:

    1. Any NRL or AFL coach in the last 50 years.
    2. Widely acknowledged to have been coined by Jimmy Greaves – click here for more on football-cliches.
    3. If you really insist – Lorentz transformation.
    4. Hear Iggy Pop sing it here – if you’re game.
    5. You can find out more about the K-Pop here.

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