Deloitte Report Finds Australia’s Dealers Thrived in 2009

Australian vehicle dealerships successfully weathered the economic storm last year, helped by a government stimulus package, low interest rates, tax incentives, short vehicle supply and good business practices.

Australian vehicle deliveries in 2009 vastly exceeded expectations at 937,328 units, down just 7.4%. That was significantly less severe than in the U.S., where sales plunged more than 20%, Deloitte Australia Pty Ltd. says in its recent “2010 Deloitte Motor Industry Overview.”

All of these factors led to a 5% increase in gross profit, coupled with a 5% reduction in expenses, doubling the bottom line of most dealerships in the country, the report finds.

What started out as potentially one of the toughest years to make a profit in the last decade turned out to be the most profitable ever for Australia’s dealer network, says Danny Rezek, Deloitte motor industry services partner.

The average Oz dealer generally makes between 1% and 1.4% net profit on sales, while benchmark dealers make 2% to 2.5%. But in 2009, the average dealer finished the year at about 2%, while the benchmark group moved to 3%, the report finds.

“We now need to ask ourselves if the party can continue in 2010,” Rezek says. “The key to success will be measured in product, price and process. The growing Australian economy, backed by new products at great prices, will be the call to action in 2010.

“Buyers will have a plethora of choices, so the dealerships which continue to focus on processes will be the winners this year.”

Rezek says Deloitte’s analysis shows the Australian auto industry now is a very open and competitive market. “The ultimate winners will be the consumers who are now enjoying a smorgasbord of choice and great value.”

Dealers who focus on product, price and process will be 2010 winners, Deloitte report finds.

The better-performing dealers will return to basics such as maximizing test drives, converting inquiries to appointments, setting benchmarks, measuring performance, incentivizing actions, tightening expenses and creating accountability.

“A large challenge for dealers will be to avoid reverting back to complacent bad habits as the economy improves,” Rezek says.

Dealers who developed strong parts-and-service operations rode through the economic storm, because revenue from these operations tended to be relatively stable in the short- to medium-term.

“We have found that many dealership brands have recently embarked in implementing fixed-price service programs in order to improve customer-service retention,” Rezek says.

“This combats the aggressive marketing by (used-car) franchises and independent service operators who, in the past, have created the perception that dealer servicing is expensive.”

The most successful dealers have become far more selective with external-trade customers, assessing their true net contribution by taking into account all the resources devoted to servicing each customer and cash flow, the report finds.

Only 16% of vehicles sold in the Australian market in 2009 were locally produced, down from about 50% in the mid-1990s.

The report says the long-term future of the Australian industry rests in successful export programs, and the strong Australian dollar has made it challenging for exporters over recent times.

The report also finds more than 80% of retail customers use the Internet as an information gathering tool before they visit the dealership. Customers also use the Internet to sell their current vehicles, rather than trading them into the dealer.

Deloitte Motor Industry Services Managing Director Wayne Pearson says 2010 will be the year of the retail customer in Australia.

“With government stimulus unlikely to drive buyer behavior in 2010, a growing economy backed up by new products at great prices will be the call to action in 2010,” he says. “The brands that have these calls to action will be on the shopping lists and bring the customers into the dealerships.”