Let car dealerships burn

Via the AFR:

The massive stimulus and relief packages to help businesses hibernate during the coronavirus shutdown are doing little to protect the $55 billion car dealership industry, with many expected to collapse within months.

The car dealership sector is a behemoth. Until COVID-19 hit, it directly employed 55,000 workers including 4446 apprentices, paid $5 billion a year in wages, $2 billion in tax and collected $1.6 billion in duties.

But the economics of dealerships – high turnover but margins of less than 1 per cent – precludes most of them from the various state and federal government assistance packages even though they are in dire need of them.

Too bad. They aren’t special in any way and are entitled to existing support.

Besides, if they’re running on 1% margins then there are clearly too many of them.

Let ’em burn and consolidate to make for a more stable and profitable sector in the future.

David Llewellyn-Smith
Latest posts by David Llewellyn-Smith (see all)

Comments

  1. Why would you want any industry to burn. REALLY is that what this page is about to glorify this. How many families will this destroy and people lives turned upside down , Suicides , job losses of workers, families losing their homes etc…… AND YOUR CHEERING THIS ON. TERRIBLE

      • This. Capitalism only works because of failure. “Creative destruction” it used to be called.

        Why do we need car dealers when we’re happy to deal directly with the manufacturer when buying other items like iPhones?

        Modern Australia is a cesspool of vested interests and lobbyists.

    • The overall ‘burn’ statement is directed to all of those businesses who were basically non-sustainable prior to COVID, and only really held their heads above water thanks to the over-zealous nature of the bubble mentality.

    • Didn’t take you for a commie. Bailouts for everyone despite how bad the economics of the business are?
      Governments should protect industry that are in the national interests. Car dealers rank pretty damn low on the list.
      All that said, given the car industry will be lobbying pretty hard for some sort of assistance I imagine they will get on the taxpayers teat.

      • Really. They couldn’t protect manufacturing and they want to bail out dealers? Ridiculous.

        Are real estate agencies getting a bailout, too?

          • Even if they did – and that’s a big IF, it’s unlikely to save a lot of the dealers. This recent pulse in Sydney and Melbourne prices did nothing for motors.

        • You are sharp, Kodi. I like you.

          I can actually see dealers getting a bailout and real estate agents getting a bailout (in fact, they already did – that backflip about allowing inspections notwithstanding lockdown is nothing of not a bailout).

          On the other hand, The auto manufacturing industry employed too many blue collar blokes and too few shiny-suit spivs, so it wasn’t really a suitable target for government money.

        • drsmithyMEMBER

          Really. They couldn’t protect manufacturing and they want to bail out dealers? Ridiculous.

          Are real estate agencies getting a bailout, too?

          Are they unionised ? No ?

          Then probably they are.

        • Jumping jack flash

          Yes. Early access to super to pay the rent = bailout. Early access to super to use for house deposits = bailout.

          It doesn’t matter that the new and used car markets were in serious trouble before the virus event, they’re obviously trying their luck to get some cash. They probably will succeed.

      • 21 ButtZilla St.

        they should lobby for grey/parallel imports to be unrestricted (like the 1990’s) & switch to selling quality used imports.
        too hard basket apparently.

      • nexus789MEMBER

        The likelihood is that they are going to try and replicate what they were doing before the shutdown. Being cynical I think the initiative to look at manufacturing will go the same way as all the innovation initiatives.

    • Then why are you all over it? Why stress out here when you could be surrounded by like thinking people somewhere else? Seriously. I’d like to know.

    • it’s an industry that should be called Ticket Clippers. Let all manufacturers open few larger centres to conduct sales in each city and train private mechanics on how to service new models. Car dealers don’t make any contribution at all and generally run worst mechanics shops – price-wise and quality of workmanship.

    • I feel for the workers and have friends in the business, I am just not sure theres a role for traditional sales people any more, when i walk into a car dealer i know exactly what i want to buy and roughly how much it should cost. Internet makes the research easy. A service centre i need, sales no.
      Real estate is even worse cant see the point of an agent at all.
      Conveyance ,building inspection, etc yes.
      I think most people under 50 feel the same way and a lot of the oldies.
      I am looking down the barrel of retraining at 41 myself being in the Oil Industry but it is what it is.

  2. Whilst I don’t advocate that we celebrate the death of industries. I think the car dealership model is quite outdated and very inefficient. You can have a hybrid model of online and a few dealerships that can drive the car to your house or work to check out and test drive all booked online. I think Tesla has this model already. There’s way too much protection of the dealership structure and it’s inefficiencies everyone pays for through higher prices. Car sales were way down already, we had over invested in this model and the struggle predates the crisis. I think current measures are enough to support the well performing and well managed dealerships, the others are just having to move their decision to close an unprofitable enterprise earlier.

    • Yes, exactly.

      Not everyone gets to keep their inefficient non-essential businesses, even with a global pandemic.

      • Don’t worry, when Tesla goes bust the customer service will improve no end .. 😉

    • Yes, the Tesla model is way better for the consumer. The current car sales industry is going to go through a massive shake up as Tesla continue to take market share. They have a superior product, and a superior distribution method which makes things easy and transparent for the consumer.

  3. Australia – Land of the Used Car Salesman…. we grow em, we import em, they’re everywhere…but we have a massive shortage of them also so should expand our skilled migrant visa program to add another 50,000 of them ASAP!

    • Gordon Farkas in that great 1990 Australian movie The Big Steal. Now that’s who I think of when I think of a used car salesman!

      • Absolute BeachMEMBER

        A true Aussie Hero! Our Gordon Farkas. Really enjoyed the scene of him walking out of the brothel in 50% ladies attire. At the time I worked as a cheque collector for a big motor wholesaler and knew most of small and large Dealer principles in Melb. They were mostly just Gordon but fully dressed. Classy as rats with a gold tooth. And all relied on insane debt plans that were all just a month or so away from default. I’d get told to collect a cheque (strict 7 days terms) and I’d drive across town only to find the Dealer was hiding somewhere to get an extra day of credit……a truly solid business model.

    • Yep, cars in Europe are so cheap it’s ridiculous. No reason they shouldn’t be here too.

      • They do have to be adapted for Australian regulations before they come here. Plus, it would be better economies doing a LHD run to an RHD one you’d think .

        • drsmithyMEMBER

          Any car they’re selling here they’re also selling in other RHD markets like the UK and Japan (usually with more options as well).

          We should just adopt either the Euro or UK vehicles standards that the cars need to be designed to anyway.

  4. Have a walk through any dealership at the moment and be amazed by the number of crows hanging around making Caar calls.

  5. how can we be getting ripped off blind if margins are 1%. i have worked in the industry for 30yrs and 1% is generous approximation. The media has ruined the car industry by fuelling false expectations about what size discounts to expect. most sales staff work 50hr weeks and give up the majority of their weekends but the public expect them to do that for little reward

    • It was my understanding that the reason their margins on sales is so low coz they make it up big time in the service model.
      Can/will everyone who has already bought a new car still take it to the dealer for servicing at inflated prices?

    • [email protected]%

      1% might be what they show to the pleb salesman at the end of the line.

      Beyond that there are significant margins that are hidden in volume rebates, performance rebates, etc, etc.

      The price of a car in the yard is at least 50% more than the cost of the car just off the ship. that 50% goes somewhere….

      • Yep, a long time ago in a dingy data centre I saw the actual invoices that were sent to dealers coming off a printer and the wholesale price was at least 50% less than retail. 1% is like when you go into Hardly Normal and try to get $100 off a fridge and they tell you that it is below ‘cost’.

        • agree. if they only make 1% then volumes will have to be x10 higher in order for car dealers to stay solvent. I managed a team that was making >$40m of revenue at 9% margin and I had to run very tight ship to keep it that way. There was very little room for mistakes and I am absolutely sure 99% of the car dealerships would not be able to control costs as good as I did. Just hard to believe they could have stay in business for so long on 1% margin.

  6. who owns the majority of nth shore&eastern suburbs realestate, car yard staff OR finance&insurance&stock brokers etc???

  7. Side DishMEMBER

    A Recession helps remove bad business practices, inefficiencies and bad businesses. We haven’t had a recession for way to long and we are about to experience a big clean out in a short period. Recessions and downturns are a natural part of the cycle. The crazy idea that governments should protect industries and businesses from them is what has got us to this point. This recession will cause a lot of pain but should also provide a clearer path for new streamlined businesses to rise and gain market share

    • That’s the way it should be, but it is also why powerful lobby groups have grown up over recent decades – to ensure that certain industries get favours from the Gubmint when the going gets tough.

  8. TheLambKingMEMBER

    Car dealerships sell cars to make money off the car servicing department. Have a look in the US as to how hard they are pushing to kill Tesla and the sales model (online). They successfully lobbied to halt on-line sales in a number of states. But the real killer with Tesla and EV’s in general is that they require almost no complex servicing – hence the end of the Car Dealership as we currently know it. So Car Dealerships is a dying industry – like petrol stations. Don’t throw away good money on an a dying industry.

    • Tesla and EV’s in general is that they require almost no complex servicing
      Is it still easy to replace, say, a failed light bulb in a Tesla?

      • TheLambKingMEMBER

        Is it still easy to replace, say, a failed light bulb in a Tesla?

        What? There are NO light bulbs in a tesla (or in most modern cars). They LED’s, which have MTBF (mean time between failure) of around 100,000 hours – which is 11 years.

    • Read analysis a little while back that predicted that up to two thirds of dealerships in the US will close in the next 5 years or so.

  9. @peachy you are soo misinformed. 1% is total dealership profit margins not sales. have you even for one moment considered the governement take out of dealerships? 1% margins is easily obtained from auditors reports, look them up, educate yourself. how is it acceptable to pay $1500 for a phone but not $30k for a car with all its tech & electronics. or realestate commisions of 10s of thousands of $$$$

    • I’m not saying it’s right or wrong for a car to cost 30,000 and a phone to cost 1,500.

      I just know for a fact that the 30,000 car only costs a maximum of 20,000 ex-factory, delivered to Australia. Often much less than 20,000.

      …manufacture cost of a phone I don’t know. But I suspect margins are about as fat.

        • There is a lot of taxes and tariffs on Euro cars, but they also put a “prestige premium” on the price so that d!ckheads see the price and think a Volkswagen is a good car.

          • drsmithyMEMBER

            There is a lot of taxes and tariffs on Euro cars […]

            That’s not it.

            For example, the price difference between a VW Golf R and the Audi S3 in the UK is something like a thousand quid. Here it’s $20k .

            The “Premium” Euro brands manage to get away with charging far more of a premium here than most anywhere else.

          • Without knowing if the Aus and UK models have all the same specs, that IS impressive gouging by Audi!

          • Tariffs are low on cars in Australia — 5%, though from some countries there are no tariffs due to FTAs (including cars from Japan and Thailand).
            There’s also the luxury car tax for cars above $65K or so.
            And of course the GST.
            I’d say for non-luxury cars, taxes are low.

  10. I think firstly that the Royal Commission was the first nail in the coffin for the car industry and now we have this. Makes you wonder if we really need them anyway as it’s an outdated model with lots of dodgy people involved.

  11. so lets not assist banks,airlines,general retail or commercial landlords. lets leave all the $$$ to the old establish money& top 2% money earners. Yes ban novated leases & salery sacrifice. Why should ordinary workers susidise someone elses vehicle purchases

  12. the royal commision exposed the people providing the finance not those selling the cars. Without greedy finance companies there wouldn’t of been the need for a royal commision

  13. Two big scam industries.
    Real estate with negative gearing
    Cars with novated leasing

    Lifes two biggest purchases corrupted. Then add essentials to life like utilities and how much a scam that is re gas cartel and this country is an absolute joke.

  14. no not a salesman but involved in the industry for ever. and yes novated leases are just a cash cow for the finance industry and their mates the leasing companies. the lowest profit sales type in the industry for the dealers.

    • and yet fail it will. Does Oz need 350 different car models and 40 or so brands to choose from?

  15. Chinese Plague

    Dumb industry filled with spivs that don’t like working too hard and aren’t polished enough to be a real estate or finance spiv.

  16. Maybe now is a good time to modernize the import regulations/ADRs for new and used cars, to allow cheaper cars to be imported en masse by dealers and individuals.

  17. Jumping jack flash

    Car market was in the toilet before the virus event. Now they’re running up to the government with their hand out.

    I suppose it doesn’t hurt to try. Free money for everyone!