Automotive Insight Ireland

It seems I have stimulated some debate with our Automotive Insight Ireland report published last week, covered in both the Independent and the Examiner. 

A question asked about the report “is it all doom and gloom or does the report highlight any opportunities for growth”. The straight answer is no, it’s not about doom and gloom and it does highlight opportunities (what one person sees as doom and gloom another sees as light and hope). 


If you know me you will know that I’m not a spreader of negativity, I actively look for opportunities so that they can be utilized for an advantage, be it a profit opportunity or a more efficient way of working.

The report was produced to help my clients in the car industry in Ireland to see what is likely coming down the road. That way they will be better placed to capture those opportunities to help them succeed.  

The views in the report are based on dedicated research and 20 years working knowledge of the Irish market. We have used historical sales data from the SIMI and the Central Statistics Office (CSO), along with recognised projections for Ireland from both the IMF and European Commission’s paper from the European Adjustment Programme for Ireland (which was reported upon in the news a couple of weeks ago).

I have huge respect for the automotive industry in Ireland. Of the markets I work in Ireland is, at the same time, my favourite and on occasion my most frustrating country. It has gone through massive change in the last 5 years, some of which was avoidable had people acted sooner, and some of which was inevitable because of economic situation the country was put in (or had found itself in). Poor governmental decisions along the way haven’t helped the industry much either.

Click on the picture to see the full size version

The way the industry has adjusted to the change is commendable. The government changed vehicle taxation in 2008 around emissions and overnight some cars that were selling  stopped selling; dealers got them sold because they had to. Cars that were newly in demand had limited supply; the trade sourced the cars from elsewhere importing 60,000 cars in 2008. When new vehicles crashed in 2009, the dealers cut their cost bases and they turned their attention to Aftersales. Dealers embraced and adjusted to the changes forced upon them because they had no choice.

These changes are graphically chronicled so you can clearly see what happened to the new vehicle market through that period for both passenger cars and LCV’s. We have looked at the performance of the brands, the manufacturers, the distributors and the private importers. The findings are eye opening when you look at them in the cold light of day. How you interpret the messages in the data is down to you.


Some of our findings

In 2006, 56% of the Passenger Cars and LCVs sold in Ireland were distributed through private importers whereas last year it was just 33% - that’s a big change. Some manufacturers have really taken advantage of the market and it’s reflected in their numbers and market share.

VW GROUP IRELAND 21000 CARS IN 2011 OUTPERFORMING THE MARKET

In the last 5 years more manufacturers have moved towards manufacturer-owned dealerships and manufacturer-supported dealerships – another big change. The winners in this change being the management that have spotted the opportunities to work with the manufacturers, to learn from them and to grow with them.

400 DEALERS? MAYBE, MAYBE NOT

The sales throughput per dealer is lower than the average in Europe of *270 per dealer, the UK average of 388 and the USA average of 720.

*European new vehicle sales per dealer are difficult to establish as there are 2 measurements, one for EU16 and one for EU27. 

Throughput per dealer has to increase in Ireland and there are only two ways to do it, increase vehicles sales or cut dealers. It’s not nice to say but it needs saying. The positive dealers will work on getting their numbers up, attracting more prospects to their businesses, marketing more effectively using the channels available today that did not exist before. These will be the winners. The losers will fall by the wayside and the winners will grow, it’s as simple as that.    

Service work is declining (by 2014 the number of cars aged up to five years old in Ireland is forecast to be at half the level of 2008). There is so much work slipping through dealer’s hands, if dealers worked smarter it would good for the customer and good for the dealer. 

GARDX

The winners will be the ones that sell warranties, sell service plans, sell paint and fabric protection, capture more work through vehicle heath checks and offer better customer service. If you don’t get involved in these activities you will lose ground for sure.

The supply of used cars for dealers to retail is on the decline and the supply lines are already drying up. The manufacturers can do something about this by incentivising and pushing up volumes. It’s unlikely to be the government. So when your manufacturer says that they are getting behind leasing you will understand why they are doing it, to supply the used car market. 

As supply dries up the best place to source cars will be your own customer base, start working it! 


Your customers own your future used cars, help them look after them and help them sell them back to you. In the long run this will be your most reliable source of used car supply.  

Finance income, once a core component of the revenue model for a dealership is now mainly controlled by manufacturer supported banks (with a couple of exceptions). It has to be because there is no other access to money in Ireland. A consequence of this is that the manufacturers can assert more control over dealer profitability. Is this a good thing for the overall market and does it ensure competition? These two questions need answering. Looking on the bright side dealers will learn to sell new insurance products such as Return to Invoice (RTI) and Vehicle Replacement Insurance (VRI). They will need to increase sales of ancillary products and get better at qualifying the finance and insurance opportunity. If you don’t open the opportunity you won't be able to sell it!   

The change of the last 5 years will continue as the industry modifies its shape and colour

The report is designed to help those working in the industry to forecast better, to see more clearly the direction the trade is going. You shouldn’t just look forward without looking back and learning from the past. That’s why we look at the performance of the brands in the market over a 20 year period. That said the past is just part of the conundrum. What influences the market in the future will not necessarily be what influenced it in the past. 

The use of social media is one example, there are 2 brands in Ireland working social media better than their competitors and it’s reflected in their sales volumes.

So to accurately forecast depends on a number of factors, the market being just one of them. Another key factor is the brand and the importer. The manufacturer owned distributors are in the majority of cases doing better than the private importers. If you know this you can forecast more accurately.

WINNERS AND LOSERS

Other critical factors that influence any forecast will include the performance of the economy, the unemployment rate, the general performance of the Eurozone and the banks. As part of our forecasting we used the IMF predictions for the country. Are these likely to be accurate? Who knows? The data is useful and with that in mind one of our forecasts is based on the IMF projections.

CURRENT IMF PROJECTION DATA

We have produced three forecasts for the market through to 2016, the same timeline as the IMF predictions.

The first projection is a bullish forecast recently mooted by the industry, the second being the IMF based forecast which is a bit more pessimistic and third something down the middle. All three forecasts suggest fewer dealers are required to service the market and I want people to understand this. If you are going to be one of the ones that go its best to know sooner rather than later, that way you will have options.

And for those that stay you’ll need to put in those practises that set you up for the future, spot the opportunities and the threats now, be prepared for them and get to work on them now.Putting in place systems that capture more service work for example will be time well invested as the service parc is falling .

Whichever way you cut up the market some dealers will leave the industry voluntarily or through business failures. Some of these business failures are avoidable if dealers act sooner rather than later. I don’t want to see another business go under, I know the hurt it causes, not just to the staff employed but the owners of the businesses as well. This is the primary motivation for the production of the report, to help those businesses see the future market more clearly. That way they can plan accordingly.

BER IS JUST AROUND THE CORNER 31ST MAY 2013

And finally a new Block Exemption Regulation (BER) is just around the corner. How prepared are individual dealers for the new landscape? And are they as prepared as the manufacturers?

My view is that dealers will be ‘culled’ as vehicle manufacturers use new BER European Block Exemption regulations, to restructure and realign their retailers. What those dealers do next will determine whether they survive or not and that’s where the report comes in. The historical performance data of the brand and the importer is useful data if you want to hang your hat on another brand in the future (or add another brand to your portfolio).    

In a nutshell our belief is that there is not going to be enough business to go round for all of the dealers in Ireland today.

There are two key reasons for this. The primary reason is that the country doesn’t look set to recover quickly enough. This means that new vehicles sales will not recover to pre-recession levels in the near future. The second reason is that the costs of running a franchised dealership continue to increase.

THE COSTS OF OPERATING A FRANCHISE ARE SIGNIFICANT

New volumes are down, revenues are down and the costs have increased at a time when the amount of available service work is also declining (by 2014 the number of cars aged up to five years old in Ireland is forecast to be at half the level of 2008), and the supply of used cars for dealers to retail is constrained by weak new car sales volume.

The combination of all of these factors means that the number of dealerships will have to fall. The question is, by how much? That’s what our report sets out to answer. Our findings suggest that there will be around 375 dealers remaining in 2016 albeit one projection shows a higher number, which I hope is the case. 

That’s why we think Automotive Insight Ireland is a unique analysis of the vehicle sales business in Ireland. It draws on 22 years’ worth of car and LCV sales data and the most up to date economic forecasts available to provide forecasts through to 2016 for new vehicle sales, used vehicle supply, the size of the five-year service parc, overall dealership numbers and more. It also includes detailed analyses of the sales performance of the leading manufacturers and distributors, and identifies the clear winners and losers.

If you want a copy then drop me a line back. There is a charge for the report and if you want the data tables as well they are available. Finally if you are an industry executive and you are tasked with business planning the report will be money very well spent. 

For more information, contact Saleslynx on +44 1276 479 999 or +1 415 639 3766

Alternatively you can email me at brian@saleslynx.co.uk