‘Time to sell’ on carsales and economic indicators point to sustained demand for cars and a healthier Australian auto industry.
Challenging trading conditions for much of 2020 are making way for a better outlook – as economic indicators point towards sustained consumer demand for cars.
And this is no better demonstrated by a key industry stat: used inventory ‘Time to sell’ continues to fall on Australia’s #1 for cars, carsales.
Between July – December 2020, used cars sold 29.6% faster than the corresponding period in 2019. Similarly, new cars also sold 25.6% faster across the same period.¹
Spurred by more demand, real-world prices on carsales also increased.
Thanks in part to the Festive Season rush, the median listed price of a used inventory item hit a remarkable $27,786 in December 2020, up 15.8% on the same month in 2019.²
Overall, the median listed price of a used inventory item on carsales between July – December 2020 increased by 8.9% compared to the same period in 2019, to $25,880.¹
In fact, median listed prices on carsales for Australia’s most popular used cars, such as the Toyota Landcruiser, Toyota HiLux and Ford Ranger, have increased by over 30% in the past 12 months.²
In good news for the auto industry as a whole, the result of high demand, quicker ‘time to sell’ and increasing median prices for used cars, is strengthening dealer gross profit margins across the country.
“Overall, Gross Profit is up significantly across most brands, models, body types and price points,” says Michael Holmes, Executive Director – Dealer at carsales.
“It’s a remarkable turnaround for Australian dealers considering the challenging trading conditions that prevailed throughout much of 2020.”
While COVID-19 continues to impact inventory levels and important processes such as reconditioning and car transport, many dealers have benefitted from reduced floor plan costs as stock turn rates increase.
“It was impressive to see how leading dealers used the COVID-19 pandemic to sharpen inventory acquisition and streamline reconditioning processes,” says Holmes.
“Combined with increased inventory turnover which is seeing dealers sell more cars within 14 days, many dealers are realising improved cash flow.”
The improvement in dealer profitability hasn’t gone unnoticed by industry leaders Deloitte Motor Industry Services, which provides benchmarking and financial services to dealers across Australia.
“We are in an extremely unique period in the automotive industry. And 2020 was perhaps the most unique year ever. Vehicle gross levels increased significantly, and have stayed high so far in 2021,” says Lee Peters, Partner at Deloitte Motor Industry Services.
“Productivity has also increased, which has been a big focus for a number of years. Dealers have been able to reduce their variable and semi-fixed expenses.”
According to the Australian Financial Review, Australia’s biggest car retailing group, Eagers Automotive has benefited from the uptick in demand for cars, lifting its profit guidance twice between December 2020 and January 2021.
New car market and Aftersales pick up
New cars have also registered an uptick in demand. With price differences between new and used narrowing significantly, and with comprehensive manufacturer warranty and the latest equipment and safety features included in the purchase price, new cars are attracting a wider range of consumers.
The Federal Chamber of Automotive Industries (FCAI), now predicts the new car market will rebound back over 1.0m sales in 2021.
Opportunities also exist for dealers to increase aftersales sales and profitability, with rising rates of domestic auto travel and increased car usage accelerating servicing rates.
Same-store revenue at aftermarket retailer AutoBarn increased 36% between July – September 2020 compared to the same quarter in 2019 with the biggest growth coming for seat covers, roof racks, dashcam equipment, replacement radios and stereo equipment.
Household savings surge
Australia’s management of COVID-19 remains a success relative to the USA and UK. As a consequence, economic indicators such as GDP, consumer savings levels and employment numbers, bode well for the local economy.
After factoring in an increase in consumer spending and better than expected jobs numbers (with 50,000 Australians starting new jobs in December alone), investment bank UBS upgraded its Australian GDP forecast up 4.3% in 2021.
State economies have so far been affected disproportionately by the pandemic but even the Victorian economy, battered twice by tough lockdowns, is forecast to grow by 5.3% in 2021 according to the Deloitte Access Economics quarterly business outlook.
Similarly, Deloitte believes that both NSW and Queensland GDPs will also grow more than 4% this year.
And despite the expected rollout of COVID-19 vaccines, consumers are tipped to continue to spend and travel within the confines of Australia for the rest of the year and into 2022, boding well for dealers of big-ticket items such as cars.
Between January – November 2020, Australian households saved an additional $112 billion – sending savings to a 50-year high.
Cars are very much on the shopping list for savers. According to the Commonwealth Bank’s most recent Household Spending Intentions study results, Australians are ready to splash on new and used cars, domestic travel and entertainment this year.
“The ongoing improvement in the housing sector should help the outlook for the motor vehicle sector. RBA research has shown that spending on motor vehicles generally has the highest response to changes in property prices,” the Commonwealth Bank report stated.
And this sentiment is reflected in the latest carsales consumer survey results. 48% of respondents to the onsite survey between January 14-16, 2021 are looking to ‘buy now’. Overall, 78% of survey respondents are looking to buy within three months.³
Demand for cars is also leading to an uptick in automotive job opportunities as dealers look to invest in their structures and processes. Leading job site SEEK currently lists over 8,000 job openings in the Australian automotive industry , ranging from front-end retail and management positions to Aftersales positions such as Service Advisors and Parts Interpreters.
“2021 is shaping as another extremely interesting year, with many opportunities and challenges affronting the Dealership community. Change is the one certainty. But don’t be scared of change… rather, be prepared for change,” advises Peters.
carsales enhancements vital in current climate
In closing, Holmes reminds dealers not to discard lessons learnt earlier in the COVID-19 around facilitating seamless transactions at home.
“Innovative dealers will continue to make use of the tools carsales debuted in 2020 such as video, buy from home, vehicle inspections and dealer reviews to make the most out of consumer demand and increasing preference for online transactions.
“carsales consumers continue to indicate that additional value, convenience and dealer reputation continue to greatly influence their purchase decisions.”
“Although the COVID-19 environment is dynamic and can change quickly, all things being equal, dealers can feel confident about their prospects for greater sales and profitability in the first half of 2021,” concludes Holmes.
Sources:
1.carsales internal data, July 2019 – December 2019 vs July 2020 – December 2020
2.carsales internal data, December 2019 vs December 2020
3.carsales onsite survey, 14-16 January 2021, n=9,003
