It is fair to say that Australia’s car dealerships are facing a grim future, caught between plunging sales and changing technologies.
New car sales were already collapsing before the COVID-19 pandemic hit, with annual sales slumping to December 2009 levels after 28 consecutive months of decline:
However, the pandemic has made a bad situation worse, with consumers now more likely to cancel/delay purchases over concerns around job security and income losses once emergency income support is unwound.
Car dealerships in Victoria are worst impacted, with dealerships surviving purely on JobKeeper and many facing the prospect of permanent closure:
“There will eventually be large-scale job losses and there may be some smaller dealerships that may struggle to open again,” said [VACC’s Head of Marketing, David Dowsey].
The VACC estimates if dealers do not qualify for the extended government payments, this could result in a loss of employees from the Victorian new-car dealership sector of 24.95 percent…
This is in addition to the 1226 Victorian employees the VACC says were let go, made redundant, or not replaced from March to August this year.
Nick Strauss, managing director of Berwick Motor Group, which has six dealerships across Victoria, recently described the economic environment as “catastrophic” with “our whole industry… on a precipice and it’s on this knife edge”.
The longer-term outlook for car dealerships is equally challenging, with the COVID-19 pandemic accelerating the shift to online sales:
Carconnect… has recorded a spike in demand of 133 per cent since March, and sales up notably on last year, with its owners saying consumer behaviour was permanently shifting to digital channels…
Seven-year-old Carconnect, meanwhile said the rise in customers using its site had led to sales in June climbing 20 per cent on the same time last year.
Co-founder and CEO of Carconnect, Rob Chaloner, said many consumers saw dealerships as a place to learn and validate information they found online, before going back online to complete their purchase…
Nationally, Carconnect has a network of 1000 dealerships on its platform…
How long until consumers are able to bypass dealerships completely and purchase online from carmakers directly? We have already seen this phenomenon in retail, where bricks and mortar stores are seeing sales and profits crushed by online sales.
The economics of car dealerships is not exactly robust. They rely on high turnover and margins of less than 1%.
Thus, the industry is facing massive consolidation brought about by falling demand (sales) and the shift to online.
