Pandemic brings record profits to new car dealerships in Australia – report


Chronic motor vehicle shortages throughout the pandemic have generated record profits for new car dealerships in Australia as customers pay in full at retail and face long waiting times.

The return of new car discounts could be years away – industry analysts have predicted – after a new report revealed that stock-outs and high prices during the coronavirus pandemic provided the biggest never before recorded financial windfall to dealers across Australia.

Research firm Deloitte – which has forensically monitored the Australian car industry for 25 years – has revealed that new car dealers made more money last year than at any time in recorded history.

Dealer profits have more than tripled in the past two years amid continued inventory shortages, higher transaction prices and the sudden death of discounts and drive-away deals.

For the past two years, customers have been forced to pay full retail price and endure long wait times for a new motor vehicle.

Figures provided by Deloitte show that in the pre-pandemic period of 2019, new car dealerships made an average profit of $600,000 a year – but last year the average profit per dealership was $600,000. $3 million.

Deloitte said its latest earnings data came from monthly surveys of 1,650 dealers nationwide, more than half of Australia’s network of 3,000 showrooms.

With no end in sight to restrictions on the supply of new motor vehicles, industry analysts predict that high profits – and the absence of new car rebates – could continue for several years.

“Dealers made a dollar…we made a lot of money,” Lee Peters, one of Deloitte’s longtime auto industry experts, told the Australian Automotive Dealers Association (AADA) conference. ) in Brisbane last week.

“Low supply levels (of vehicles) have meant that … discounts have been eliminated,” Mr Peters said.

“Make hay while the sun is shining,” Peters said at the auto dealer conference. “These unique conditions, the most unique conditions we’ve seen in at least 25 years, they’re probably going to be here for the next two years. Make as much money as you can right now. Make sure (you don’t ) miss a turn.

Mr Peters said new car dealerships should use current levels of prosperity and high profit margins to secure their businesses for the future.

Automotive specialist Deloitte advised dealers not to look back to that decade-long period of high profits and think, “Wow, that was a nice little injection.” What we need to consider is saying, “That was a nice reset,” rather than just an injection (of higher earnings).

“As a business model (the auto industry needs to focus on) cost and customer first,” said Peters, who urged dealers to “use this two-year period to… future-proof our activity.

“We all have money, we all make profits, our balance sheets are bigger than they have been in the last five years,” Mr Peters said. “Make sure (you) do something with it, so we’re ready.”

Mr Lee said a lack of competition in the new car market – due to chronic and ongoing inventory shortages for the past year or so – has contributed to the recent period of record dealer profits.

“There’s less competition,” Peters said. “In fact, most customers don’t shop anymore, so they don’t have to go to multiple dealerships because no one has stock.

“Instead, what we see (customers) doing is…visiting their local dealership, placing an order and trying to get into the queue as quickly as possible. It’s a nice and healthy way to sell in this environment.

A fellow automotive expert at Deloitte, Dale McCauley, told the conference: “When the pandemic hit, no one could have predicted this outcome. (The pandemic) has produced… the most interesting dataset we’ve seen in the past 45 years.

“For the first time I can remember in many years, demand (for new motor vehicles) has exceeded supply, with $60 billion in foreign trips and dinners with friends…being redirected to sales retail, cars, domestic travel and home renovations. ”

Deloitte experts said semiconductor shortages, production slowdowns and bottlenecks in shipments – and the federal government’s “Job Keeper” financial aid program – have helped push up prices. profit per car sold figures.

The data showed that the average profit on each new car sold last year was close to $5,000, about half of which came from the gross margin of the vehicle itself, while the other half came from “Job Keeper “.

For the past year or so, car dealerships haven’t needed rebates to win a sale – and automakers have saved money because they haven’t needed to offer generous bonuses. or to offer other financial incentives to move metal.

Australian Automotive Dealers Association (AADA) chief James Voortman told the conference: “While (stockouts) have ended the discount wars we saw before the pandemic – and that has greatly helped dealership profitability – this has created a very difficult operating environment for many of our members who have to deal with customers waiting for vehicles.

Deloitte experts said last year’s financial increase for new car dealerships came after a prolonged period of weak profits – and noted, just before the pandemic, that more than a third of dealerships were operating actually at a loss.

“We reached a point in 2019 where the average dealer was only making 0.6% (profit) and more than a third of all dealers were operating at a loss,” McCauley said.

“So out of the 3,000 (dealers) in this country…over 1,000 dealers lost money in 2019,” he said.

After a decade of averaging dealer profits at a rate of 1.5-2.5% of sales, the average profit earned by new-car dealers last year soared to 4% – and dealers in benchmark (the top 30 percent) made a profit that was equivalent to 6.4 percent of their revenue.

New South Wales new car dealerships were the most profitable nationally – with benchmark showrooms making a maximum average profit of 7.0% on their total turnover – ahead of the Western Australia (6.1%), Queensland (5.8%), Victoria and Tasmania (5.7%) and South Australia (5.6%).

“For the first time, we have 90% of dealers in this country making money and only a small percentage losing money month over month,” McCauley said, adding that it was important to note how dealers have struggled for the past 25 years “to be able to understand exactly how remarkable the past two years have been.”

Mr Peters said the average dealer profit of 4-5% over the past two years “is the boost (car dealers) needed”.

“As an industry, we have to do something with this kick…if we get to 2023, 2024, 2025 and we haven’t learned the lessons of this last 10-year journey, we will have missed the turn. .”

Mr McCauley said new car inventory was ‘at historic lows… and you can clearly see the impact that is having on (profits)’.

“What we’re seeing is that as new inventory comes in, most of it is already sold or pre-sold to a customer, so it moves through showrooms very quickly.”

Deloitte predicts the auto industry will become a “two-speed economy” over the next year, based on which brands can get cars and which can’t.

“We see two velocities happening, which will have inventory and which will not,” McCauley said.

“Those who have stock will gain momentum and market share (and) some customers will then be able to turn to other brands, or look elsewhere for a car that is available and in stock.

“So be sure to hold on to your customers, communicate with them, and…hold their hand through this journey to delivery.”

Despite the challenges facing the automotive industry, Deloitte predicts a new car market exceeding 1 million sales per year for the foreseeable future.

“Our latest forecast is, for the next three to five years, this market will be between 1 million and 1.1 million, and that will be pretty consistent,” McCauley said.

“With around 70 brands in this market competing for just over a million sales a year, it means that when supply comes back, competition picks up again.”

By comparison, the United States has about 40 auto brands competing for about 18 million new car sales annually.

“When will our supply chains normalize?” said Mr. Voortman. “Who knows? That’s the million dollar question, but unfortunately it’s out of our control.

Joshua Dowling has been a motoring journalist for over 20 years, spending most of his time working for the Sydney Morning Herald (as motoring editor and an early member of the Drive team) and News Corp Australia. He joined CarAdvice/Drive in late 2018 and was a World Car of the Year judge for 10 years.

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