Given our current economic difficulties, hindsight has shown us how many poor decisions were made in the past and we constantly hear the question why did none of our decision makers forecast these problems?
With the recent dramatic changes in New Car Sales volumes, we need to identify what impact this will have on the industry in the future. When sales volumes drop by 71% in as little as 24 months this will have serious short term impact. Whilst we have all seen the short term impact on the Motor Industry in terms of business closures, job losses and cost cutting, I believe we have as hard a storm to weather in 2012.
This pending storm will have consequences for the Industry, Government and the consumer. In this post I'd like to look at the consequences for the Irish Motor Industry in particular.
The Industry Challenge
To explain this scenario, let me give you some information on how the motor trade has performed traditionally. On average, 75% of the vehicles maintained in franchised main dealers are approx 3 years old or less. So obviously the newer vehicles up to 3 years old is a crucial market for aftersales in franchised main dealers. Effectively this is the pond the industry fishes in every year for aftersales business for service, maintenance and parts.
Up to now this has been a great model, as new car sales reached new records each year, the 3 year old pond just seemed to get bigger and bigger.
Just look at the size of the 3 year old vehicle market during 2009. This includes all sales from 2008, 2007 & 2006, a total of 567,291 units.
However, this model is broken and it's not going to work in the future. If we skip forward to 2012 and see how this market looks, we will see the pond the industry fishes in will have reduced by 58%. The new car sales volumes expected for 2009, 2010 and 2011 is approximately 240,000 units. If we keep the same model, how can we expect to feed the same overheads on a market that is 327,000 units less than we expect?
Quite simply, the Industry will not survive unless the business model changes and this means attracting larger numbers of vehicles older than 3 years old into the workshops. This is no easy achievement as a number of factors including price conscious customers, price perceptions and poor service are going against the Industry.
However, the potential reward for the Industry is significant. If the model can change and the fishing pond is expanded to capture vehicles up to 6 years old, the potential market size will rise from 240,000 units to 807,000 units.
Given the unlikely return of the sales volumes from the Celtic Tiger, this is a challenge the industry must meet and address and it will be crucial to the survival of many businesses and thousands of jobs.
Increased Service Levels
Change will be difficult and it will mean ensuring consumers are offered superb service at a reasonable price with exceptional convenience. Some market leaders have already begun to address this issue with lower labour rates, reduced parts prices and special campaigns for older vehicles.
For the dealers and distributors that address this issue immediately they are creating a much improved trading environment for 2012 and beyond.