Value.able: Roger Montgomery

The credit squeeze and poor wage growth have caught up with showrooms

Around the world, car sales are declining. From the US to China, car lots are suffering from increasing unsold inventory. In China, for example, automobile sales fell 13.9% in November from a year earlier, the steepest such drop in more than six years and, for 2018, car sales recorded their first annual fall in two decades, declining 6%.

But it is in Australia that declines have been the steepest. Sales in 2018 fell 3%, masking an acceleration towards the end of the year when December sales were down 15% compared with December 2017. Some individual brands suffered enormously with Holden sales in 2018 down 32.7%, Ford down 11.6% and Mercedes down 13%. And the weakness has continued in 2019, with national sales down 7.4% in January.

A bank credit squeeze, the drought, business anxiety surrounding the forthcoming federal election and a lack of wage growth all impacted sales.

But dealers don’t only make money from sales and servicing of vehicles. Car financing and insurance play an important role in profitability and the Hayne royal commission’s recommendation to abolish car retailers’ exemption from the operation of the National Consumer Credit Protection Act may prove helpful from a market share perspective for the larger and more reputable networks.

Roger Montgomery is founder and CIO at the Montgomery Fund. For his book, Value.Able, see rogermontgomery.com.