The next time you’re cruising along ‘Auto Alley’ in Parramatta in your wheels, however, spare a thought for the car dealers who bring us all those beautiful, shiny cars.
They don’t get a lot of recognition – in fact, they tend to get more brickbats than bouquets – but they are in one tough business.
Deloitte’s new Industry Overview 2013 (a new tool allowing you to drill down into the data, which is now live on www.Deloitte.com.au) shows how tough it can be, even in good times.
First, some good news: Australian dealerships sold 1,112,032 new vehicles in 2012, up 10.2% from 2011, as the industry benefits from low interest rates and the strong Australian dollar makes foreign cars cheaper than ever.
Global manufacturer-funded finance incentives and marketing have also boosted the local market, which has seen strong growth in SUVs and a big lift in sales in the pick-up cab-chassis segment, together with major new model launches.
In fact, there’s likely never been a better time to buy a new car with the deals available and the quality and choice of vehicles we have – and did you know that Australian consumers have a wider selection of brands available to them even than Americans?
It’s great to see that such a key business in Western Sydney is contributing to Australia’s economic growth, and there’s no doubt in my mind that this is a challenging and exciting industry with talent, process and technology issues that keep even the best business leaders on their toes.
The good news aside, and here’s where it gets more interesting, despite this increased revenue, while the average return on sales for 2012 across all segments of the industry comfortably exceeded 2% – well above the long-term average over the last 16 years of 1.4% – this is still low in relation to many other industries and, within this industry, there is a wide disparity between the best and the worst performers.
My colleague Danny Rezek, who is the motor industry services lead partner at Deloitte, told me: “Although things have improved from an economic perspective, the top performers still have a relentless focus on operational efficiency, customer relationship management and building a balanced revenue mix.
“We see a growing gulf between average and best performing dealerships. The gross profit margin at average dealers can be wafer thin and they are often heavily leveraged in terms of stock and fixed operational costs. The leading dealerships have their operation running efficiently and understand how to attract and retain customers.”
Deloitte’s innovative ProfitFocus iPhone app (downloadable for free from the App Store) can help dealers, including those in Auto Alley, benchmark their performance against their peers.
Below, I’ve outlined just a few important points from the report that will be interesting for Western Sydney dealers:
• The first half of 2012 saw dealers enjoy the best overall profits on average for many decades, chiefly due to increased finance and insurance (F&I) income, though such a significant dependency on F&I may be risky if legislative changes were to affect dealers’ capacity to earn this income.
• The strong Australian dollar over recent years has made it tough for local manufacturers to complete against the importers. Locally made vehicles represented just over 12% of all vehicles sold in Australia during 2012, while 20 years ago the ratio was close to 50/50.
• The strength of the small car market is reflected with 6 of the top 10 best sellers occupying this segment. SUV sales are also strong, but the large car segment is languishing.
• Today’s market is more competitive than ever, as the Internet makes market prices obvious to all. In recent times one of the biggest challenges for dealers has been acquiring stock, as the level of customer trade-ins has been falling largely due to customers disposing of their old vehicles via the Internet.
• Fixed operations (parts and service) tend to provide a more regular income stream for dealers. For this reason, the more successful dealers strive to strengthen their fixed operations which provide a valuable income buffer to offset the typically unprofitable vehicle operations and uncertain demand cycles.
Looking ahead, we are confident. Danny’s comment: “This year has started strongly in terms of units sold, if it continues we could be looking at another record year. Whatever happens this year, I’m confident the ever adaptable Australian automotive dealer will continue to prove that they are well equipped to respond.”
Kate Hill is a partner at Deloitte Private Western Sydney. Contact her at 02 9840 7049 or email khill@deloitte.com.au
