COVID-19 and plummeting new car sales: a post-Holden reality check

Thursday, 21 May 2020

Issues for the industry run far deeper than COVID-19; in our last industry paper, released in September 2019, we highlighted declining sales, waning consumer enthusiasm for personal transportation, challenges of specialised premises, and dealers wedded to just one or two brands.

Unfortunately, since then the sales trend has remained downwards, while GM announced the exit of Holden from Australia in February (unfortunately highlighting the vulnerability of dealers being stuck to a brand), and COVID-19 has since smashed sales.
 

Key highlights of the paper:

• It has never been more important for dealers to know their margins and focus on cash flow to increase options and buy time.

• Businesses should have a credible plan to engage with financiers and landlords, who will need to show forbearance in these challenging circumstances. 

• With many financiers doubly exposed to both floorplan finance and to premise values across the industry, early conversations based on a solid financial understanding will be critical to receive support.

• While some dealers are destined to exit the market, those whose businesses are underpinned by a successful model with a plan for a clear and workable path to return to profitability will weather the COVID-19 storm.

 

Opportunities:

• Signs of a shift to an agency model, although potentially following a rationalisation of dealership networks, may form the basis for a more sustainable dealership model:

  • As conditions continue to contract, some high-performing dealerships will embrace the opportunity to sell differently, and ultimately more efficiently in the future.

• The preference for ride sharing services, such as Uber, Ola, DiDi, or even subscription car service, Blinker, may constitute a new sales market.

• Chinese carmaker MG is planning to add three new models to its line-up and top one million annual sales by 2024, which may provide new opportunities.

• Some dealers may choose to pivot to second-hand operations to follow the warehouse model, which could be bolstered by an influx of now underutilised ex-rentals or ex-fleet cars.

• Consumer behaviour has evolved to a point where shopping for a car online is now standard, and dealers will need to make sure their e-commerce platforms are up to date and staff are re-skilled to thrive in the “new normal”.

To read the KordaMentha Motor Vehicle Dealership Industry Paper publication, click here to download.