Rolling with the Punches

The past ten years have been pretty turbulent for new car dealers and while current industry figures look promising, only forward planning can help ensure a profitable future

Not many industries can claim to be as tough and adaptable as the retail auto business.

Over the past ten years, new car retailers in Australia have seen an enormous change in the way consumers look for cars and buy them. Advancements in technology and increased online competitiveness have forced many business owners to re-think the way they attract and engage customers.

These pressures, combined with a roller coaster global economy, rising fuel prices and changing Australian tastes have kept Dealers on their toes, as many battle to maintain sales and increase profitability. While the juggling act of managing multiple demands has seen some well-known businesses fold over the years, those who’ve managed to roll with the punches are now operating in an industry underpinned by steady growth and impressive revenue.

Indeed, recent figures released by IBISWorld appear far healthier than the lows witnessed between ‘07 and ‘08. While industry profitability is forecast to continue (albeit very gradually), a number of present and future challenges continue to lurk and threaten our success.

The challenge for the AADA, Australia’s new car dealers and related industries then, is to work together to identify emerging hurdles, react to change and fight for fairer trading conditions.

Industry Snapshot

According to IBISWorld, Australian car retailing between 2012 and 2013 produced revenue of $72 billion dollars and profits of $2.7 billion. A significant contributor to the Australian economy, the retail auto industry paid wages of $5.6 billion across more than 4000 individual businesses.

Annual growth of the industry between 2008 and 2013 was 0.7%, with the largest percentage of businesses residing in New South Wales (31.2%), closely followed by Victoria (24.5%) and Queensland (20.4%). The Northern Territory represents the smallest percentage with 0.7%.

Motoring industry figures released by VFACTS indicate that retail new car sales over the past few years are also on the rise. Last year, Australians purchased a record breaking 1,136,227 vehicles, overtaking the previous record of 1,112,032 achieved in 2012. The Australian retail auto industry has now enjoyed four consecutive years of million-plus sales as well as a substantial jump in sales of 2.2 percent between 2012 and 2013.

Challenges – past, present and future

A decidedly dark period in Australia’s (and the world’s) collective retail auto history, the global economic crisis of 2007/8 stunted consumer confidence and resulted in a dramatic decrease in sales. Fears surrounding employment and income helped contribute to tough conditions for Dealers, but also added to exponential growth in later years with pent-up demand finally conceding.

Major challenges today include the increasing rise of fuel costs, which is pushing more consumers to consider public transport and put off purchasing new cars. While the uptake of smaller vehicles, hybrids and full electric options are becoming more popular, these solutions will not be enough on their own to counteract the effect of rising oil prices, according to IBISWorld.

Other emerging issues include the increasing competitiveness of online sales, which is forecast to push down prices and cut into industry profits. In fact, operating profit margins are predicted to decrease by 2.2% by 2018.
Rising import tariffs and additional taxes on imported cars also threaten to cut into industry profitability if not properly managed.

Growth and opportunity

It’s definitely not all grim news for the industry ahead, with plenty of potential for increased revenue. The annual growth of the retail auto industry is projected to climb between 2013 and 2018 at a rate of 0.4%. Though this growth is by no means rapid, the fact it’s positively skewed offers the industry a good foundation to
build on.

The price of new cars in Australia has, and is predicted to continue to fall due to strong import competition and a strong Australian dollar. This has been an advantageous situation for many retailers and continues to provide good opportunities to attract new customers. Furthermore, new foreign sources continue to become available for Dealers from countries such as China, meaning the potential for stronger profit margins.

Whatever the challenges and opportunities that the future holds, the success of new car Dealers will rely heavily on our ability to solve problems as a unified and consolidated industry.

Now here’s to a profitable next five years!

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