IN FOCUS
It's blood on the forecourts as
glump puts brakes on car sales
business
is slow, but
jdealers'
confidence
won't be
ciented
A
GOOD car salesman is the
quintessential smooth talker,
famed for his ability to put a
sheen on the most ordinary
of cars and show the
most gaping of dents in a
glowing light.
When the country's best car salesmen,
the smoothest talkers in Irish
ass, can't spin a positive yarn about
Eisedlyown industry's performance, you
UnfW things are bad.
Gavin Hydes, manager of BMW giant
Joe Duffy Motors, makes the best stab
at jt, insisting the industry's woes are
overdone and listing "some of the non-
sense written about us" as the biggest
challenge facing his sector.
But with new car sales down 15pc in the
first half of the year, used car prices coflaps-
ing and record numbers of motois gather-
ing dust for record lengths of time, Hydes
has the air ofaman fiddling while Ireland's
forecourts bum.
famous car salesman
IpjAs Ireland's most
Bill Cullen puts it, "the motor industry is
facing some huge challenges", and he's
not talking about the negative publicity so
bemoaned by Hydes.
Taxing
Top on Cuilen's list and strongly criticised
by several other industry sou rces are the
Vehicle Registration Tax (VRT) changes
announced in last December's Budget and
introduced in Juiy.
The goalposts changed and used cars
were instantly worth less because the new
versions would costs less in July" says the
Dubliner who recently gave up the
Renault Irish distribution rights and
stOl runs some of the country's largest
dealerships.
o "By
the time we were told about it we
had already taken trade-ins that were
devalued by €2,000 or €3,000, the best
part of €50m was wiped off the used car
market."
The timing also crippled demand
v
earlier in the year, as people held out until
JJUy to benefit from lower VRT rates,
prompting a Ispc slump in the volume of
new cars sold in the first half of the year.
The figures recovered in July when
sales rose by 25pc but the damage to the
motor industry cycle wasn't something
that could be easily reversed.
"It was like having two Januarys, and it
meant we had alack of secondhand stock
earlier i n the year and higher stocks than
usual now," says Hydes.
: Between the 'two Januarys', the econo-
Sttv plunged downward with a swiftness
pbdicted by few. By the time punters had
'got to grips with the VRT changes, many
had last their appetite for an '08 reg, and
by the time the car yards swelled with
second-hand motors, recession-fearing
buyers had taken to the hills.
"Car buying tends to require a lot of con-
sumer confidence" says Alan Nolan of the
motor industry's representative body,
SIMI. "I*eople need to be confident things
are going to go reasonably well for two or
three years and that has been hit hard this
year."
Plummeting demand and the knock-on
of the VRT changes combined to
effect
produce one of the most difficult years on
record for the second-hand .car market.
"Used cars are cheaper now as a percent-
age of new car values than I've ever seen
them, and I've been in the car business for
40 years," says Tom Murphy of Waterford-
basedTom Murphy Car Sales.
In some industries lower prices stimu-
late demand, but there are different dynam-
ics at play on the nation's forecourts.
"Finance is harder for everyone," says
Cullen. "It used to be that if someone was
buying a €10,000 car and they wanted a
loan for €10,000 that was fine.
"Now the banks are really looking up
the exhaust pipes because the market is
moving so much and they're afraid of the
depreciation."
The slide in prices also caught dealers
on the hop. The problem is the market
took too long to react," says Merlin O'Reil-
ly of Merlin Motor Group which sold 3,000
used cars at its Motorcity last year.
"You'd have one soft weekend and you'd
blame it on the weather or the football,
then the following weekend you'd blame
it on something else and it took weeks to
realise there was something wrong.
"People were making the mistake of
looking at the cost of what they'd bought
and trying to make a margin on that even
though the market has moved on from
there and they should have been looking
at the price they can replace a car for and
try to make a margin on that"
The industry's delayed response, more
difficult finance conditions and weaken-
ing consumer demand all combined to
create a glut of used cars in the market and
cars spent more and more time gatheri ng
dust in the nation's lots.
Hyde says he "won't be drawn" on how
much longer it is taking to sell cars this year,
but Murphy says it^ now taking him an
average of 150 days to sell a larger Mer-
cedes, up from 120 last year, while O'Reil-
ly says his average sales time has risen
from 38 days in 2007 to 60 days now.
Across the industry, figures from Car
Buyers Guide show the average time taken
to sell a car on their website has risen by
two weeks since 2007 to about 10 weeks.
"The biggest challenge for people
towards the end of the year is trying to
clear v sed stock to get ready for 2009," says
Nolan.
"It's a difficult decision to take the hit
and sell used cars for less than you bought
them for, but people will take the hit this
year and get them off the forecourts."
The effort to offload old stock has
prompted a 15pc rise in the numbers of
dealers putting their cars on the Car
Buyers Guide website, while 40pc of the
website's sellers are now paying for
premium listings.
Car auctions like those operated by-
O'Reilly's Merlin Auctions have also seen
a surge in business from dealers. "A lot of
people have cars on finance, when the
finance companies want to reduce the
loan they have to go to the auctions to get
rid of them quickly," says Cullen.
Car dealers aren't the only ones flocking
to the auction market, where cars can
change hands in as little as 60 seconds
once a reserve price is hit.
Increasing numbers of repossessed, cars
are also coming through Merlin's doors,
O'Reilly says, along with higher numbers
of private sellers who've been turned down
for a trade-in by dealers with already
bulging forecourts.
A "diabolical" year for car rentals will
also see yet more stock come onto the
market, as leasors seek to reduce their
fleet, according to Murray's Europcar
operations boss Pat Geagan who has
already cut his fleet to about 5,000 and will
make further cuts this year.
AH in, Merlin O'Reilly expects to auction
almost 10,000 cars this year, up from last
year's 7,000.
The good news, he says, is that large
numbers of cars are still being sold at
auction, with 180 cars sold at one recent
event.
The bad news is that ever-increasing
supply means people "aren't spending the
same money as last year", in a development
that can only aggravate the general
softness in second-hand car prices.
The motor industry turmoil comes
against a background of heavy invest-
ment, thanks to a 2002 European directive
that demanded higher standards and pro-
fessionalism from dealerships.
As the forces conspire to create one of
the toughest environments ever endured
by the motor industry, questions about
companies' survival have inevitably
surfaced.
Already two garages have gone bust, and
several others have had to publicly
come out against rumours of their own
impending demise,
Hydes' Joe Duffy Motors was one of
those hit by the rumours, which he insists
are "rubbish" and which will be categori-
cally refuted by his company's soon-to-be-
published audited accounts, he says.
Meanwhile, says SIMI's Alan Nolan:
"I'd never want to underplay companies
going out of business, it's a very serious
for the owners and managers
thing
involved, but I think there's been a lot
more said about dealerships closing that
has actually happened.
"You're talking about one bad year
against a backdrop of a lot of good ones.
People are in it for the long run."
Whether it's just one bad year, howev-
er, remains to be seen.
Some 185,000 new cars were sold in
2007, depending on who you ask that
number will fall back to between 140,000
and 150,000 this year, before falling by
another 10,000 or so in 2009.
despite the universal pre-
dictions of continued falls in
YET new car sales, the industry's
future outlook is far from one of
doom and gloom.
"Between the SSIAs and everything,
2007 was an exceptional year," says Hydes.
The issue isn't 2008 or 2009 it's that
2007 was a blip."
O'Reilly, meanwhile, sees a recovery in
used car prices towards the end of the year
and is keeping his full Motorcity staff on
board despite the fall-off in business so
he'll be poised to take advantage of any
upswing.
And Cullen points to the industry's
"higher base" heading into a recession,
since just 52,000 new cars were being
sold each yearwhen Ireland went into the
last recession in 1980.
As for this recession and its challenges,
"there's no point in going to the Govern-
ment cap in hand, they haven't got any
money and they certainly haven't got any
money for the motor industry" Cullen
says. "We're just going to have to pull up
our sleeves and take it on the chin."