The global problem that is the oversupply of new cars is directly and negatively impacting automotive retailers, driving down the transactional gross on each sale.

Most readers will be familiar with the story that broke last year regarding accusations that the record new car sales reported in 2013 were inflated by counting as sold cars that never actually left the lot.

This is the result of an oversupply of vehicles, as manufacturers push for greater market share. The net effect is that Dealers pay the price in terms of lower margins and an excess of cars they struggle to sell.

Figures obtained from Deloitte Motor Industry Services reveal that the average transactional gross on a $10,000-$15,000 car is just $170. Transactional gross peaks at an average of $2090 for cars in the $50,000-$80,000 range, but is just $506 for cars priced between $40,000-$50,000.

Average Transactional Gross*over all marquee brands for Passenger Car and SUV

Price Point	Car	SUV
$10k – $15k	$170	N/A
$15k – $20k	$294	N/A
$20k – $30k	$619	$497
$30k – $40k	$1,183	$468
$40k – $50k	$506	$575
$50k – $80k	$2,090	$2,101
$80k+	$1,083	$1,102

* Average Gross Profit for 13 months to May 2015, before holdback, aftermarket and incentives.

Obviously, the AADA’s belief is that this is not a healthy environment for Dealers to operate in.

The local industry reported a record 1.136 million new car sales in 2013, backed up by 1.113 million in 2014, despite drastic falls in sales early last year.

Industry insiders believe some Dealers over-order in bulk, and inflate sales figures in order to receive bonuses, resulting in holding yards full of ‘cyber cars’, or ‘called cars’. Dealers then market the cars as ‘undriven demonstrators’, which makes them cheaper for consumers but also means the warranty period begins before the car is even registered.

Some estimates put the number of ‘cyber cars’ at 10% of reported sales, which means there could be more than 100,000 cars per year in Australia reported as sold that actually are not – or at least not when they are reported to be, and not as new vehicles.

One brand was said to have 22,000 cars in holding yards around the country, with another 8000 unsold cars in Dealer stock. Considering that brand usually sells fewer than 6000 cars per month, that represents a huge percentage (about 40%) of its annual sales.

The flow-on effect is that Dealers reduce the price of overstocked brands, forcing competitors to lower their prices as well – great for consumers, not so great for Dealers.

There is no external regulation or verification of car sales figures, so we must take each brand at its word. The FCAI denies the practice is widespread and says sales figures are accurate.

Overcapacity is not a problem unique to Australia. More than half of respondents to a 2013 KPMG global survey of the automotive industry said they felt oversupply of vehicles was a high risk, especially in strong manufacturing countries such as Germany, Japan, the US, Spain, South Korea and France.

Suggested solutions include consolidation and joint ventures and alliances, which is favoured by auto executives in Japan and Italy. German makers would prefer government assistance in the form of subsidies and production quotas, but few see that as a long-term answer. Japanese, French and UK manufacturers say investing in the brand will improve market share and sales. Only the French favour reducing production. Contract manufacturing, which has proved successful in the US, does not appear to be considered a solution for most.

Globally, almost 90 million cars were manufactured in 2014, up more than 2 million on 2013. Who knows how many are still sitting in dealerships or holding yards?
What we do know is that Dealers are the ones paying for it.