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The following article was published in our article directory on December 4, 2014.
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A shake-up afoot in the Car Sales industry

Article Category: Advice

Author Name: Hayley Woodgate

There is a shake-up afoot in the auto industry. The big car makers have struck out on their own, removing their ads from monopoly online vertical Carsales.com.au.

New car listings for Holden, Nissan, Honda and Volkswagen have dropped sharply as the auto makers issue directives to their dealerships to withhold from Australia's dominant online site for car buyers.

A research report by stockbroker Taylor Collison, which has been collecting data from Carsales.com.au, Carsguide and GumTree since September last year, has identified a 28 per cent drop in new car (in stock) listings since then.

The listings peaked five months ago and both carsales and carsguide have shown a similar trend, which suggests market share has not been a decisive variable. Used car sales continue apace. In new cars, however, the manufacturers have moved to protect profit margins from increasingly savvy internet shoppers scouting for a bargain.

This evidence of a standoff between the manufacturers and the online verticals has not arisen solely from the hard data on listings. The analysts from Taylor Collison also saw a memo from Honda three months ago that advised dealers they would be blocked from uploading new cars after a certain deadline. They began talking to dealers and soon realised other manufacturers were considering similar moves.

Their weekly snapshot showed that over five weeks, Nissan listings fell from 870 to 304 and Holden's from 4635 to 436. Although there is no volatility in the trend it is also interesting that, as of Wednesday afternoon, Audi has 776 listings and BMW just three, indicating the preference of some luxury auto makers to shy away from online sales, avoid the online comparisons and deliver greater profit margins.

Market intelligence suggests Holden originally blocked just the VF Commodore from being listed on its release in June and sales didn't miss a beat. In light of the long-term decline in the large car category (the SUV being the family car of choice these days) sales are impressive.

Volkswagen and Nissan are different to Holden in that there is still a quantity of new listings on the Carsales site but the number is far reduced compared with other makers.
How far will this go? One of the listed dealer groups told the analysts that all the OEMs (original equipment makers) would be off Carsales by the end of the year.

The response from Carsales has been to create a new category of listings: brand new cars available. This is the model it uses on its discountnewcars.com.au website. Taylor Collison has deduced that this is probably an inferior model or it would otherwise have been implemented in preference to the previous model.

Both Carsales and the second player in the market, Carsguide, used to list only new cars but began separating ex-demo cars a couple of years ago, and have now introduced 'brand new cars available', where listings have tripled over the past three months.

For Carsales investors, it should be noted that this dominant player has plenty of room to move on profit margins (all its research and development IT investment is expensed) and the recent price rise for dealer inquiries should underpin a strong year in 2014.

What happens thereafter is the key. Do they get more aggressive on pricing? Inquiry prices have been increased twice in the past five years, by $5 each time. There is nothing stopping them lifting their prices each year to entrench dominance as used car dealers are dependant on the monopoly for both sourcing inventory and generating leads.

Nonetheless, there is potential to disrupt the industry. According to Taylor Collison, gross profit on non-luxury vehicles has been around $2000 for the better part of two decades. It takes four to six leads to sell a car at $40 per lead and Carsales is now taking around 8 to 12 per cent of that gross profit.

Were they to reach further the dealers would likely jack up, unless gross profit adjusted to compensate. And there are only two ways for gross margins to improve: either the manufacturers sacrifice margin to benefit the dealers, or price rises are passed through to consumers.

Original article posted at: http://www.smh.com.au/business/auto-makers-pull-ads-from-carsales-20131010-2vbg2.html#ixzz2lthqVl9N

Keywords: car sales, bike sales, cars for sale, car sales brisbane, car sales sydney, car sales melbourne

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