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Geoff Gwilym

AUSTRALIA’S corporate watchdog could get involved in a groundswell movement to eradicate pre-delivery advice (PDA) cars – or cyber cars – being forced onto dealers by some manufacturers, according to a Victorian-based survey.

The Victorian Automobile Chamber of Commerce (VACC), acting on instructions from the Victorian Automobile Dealer Association (VADA), said it was a likely move following survey results today that showed more than 63 per cent of dealers want an end to cyber cars.

VACC CEO Geoff Gwilym said the results of the survey would now be shown to the Federal Chamber of Automotive Industries (FCAI). The next step could be the Australian Competition and Consumer Commission (ACCC).

“Ultimately, we will take this to the ACCC,” he told GoAutoNews Premium.

“I’ve written to the FCAI which is basically a ‘please explain’ letter that seeks a clear delineation between cars sold to consumers and cars sold to dealer groups.

“There is a whole lot of people who rely on data around car sales and our view is that it is misleading market information.”

Mr Gwilym said the VACC and VADA are asking for cars not to be reported unless they are sold to consumers or if they are sold to dealerships, the data is separated.

“It is misleading market information and that’s up to the ACCC to judge,” he said.

“But in fairness to the FCAI, we have to ask them to explain why it happens.”

Mr Gwilym said he will not list the businesses involved in this survey.

“Most of the members who have rang me say they know it is a problem and they want us to do something about it but they don’t want to be penalised by being part of it,” he said.

The VACC’s New Car Dealer Cyber Car Survey aimed to gather information on the extent of reporting of cyber cars by new-car dealers to vehicle manufacturers.

Although centred in Victoria, it was disseminated nationally to new-car dealerships in each state and territory, and recorded details of both non-cyber and cyber-car trades over the past six months.

The survey also captured details on the extent of manufacturer participation in cyber-car schemes, along with the reasons for dealer participation in these schemes and the associated impacts at the business level.

The VACC told GoAutoNews Premium that there were 166 respondents to the survey and that some states did not participate.

“VACC has taken calls from dealers who were in support of the survey and wanted the practice stopped but were not prepared to participate in the survey for fear of reprisal,” the VACC said in supporting survey documents..

The survey results show:

  • 80.3 per cent of respondents reported participating in cyber car schemes. That is, reporting new cars as ‘sold’ to the manufacturer, but not actually sold to an end consumer
  • 28.9 per cent of vehicle sales on average were reported as cyber-car sales nationally
  • Rural dealers are particularly affected with stocking and cyber registering demands with threats of loss of franchise
  • Cyber cars are not all bad if controlled and sold in a timely manner – it is dealers who rely on this method to turn over large volumes with little vehicle gross that damage the market
  • Manufacturers should follow Toyota’s lead and offer discounts to the consumer as part of a retail offer and not an incentive to the dealer when selling the vehicle
  • Manufacturers should incentivise the dealership on other metrics and not rely so heavily on volume targets for the Australian market

The survey found that most respondents (63 per cent) supported a ban on cyber cars as they believed it would have a positive impact on business profitability and long-term sustainability.

“These respondents believed that banning cyber cars would assist dealer cashflows and present a fairer trading environment, due to reductions in stock holding costs, a more stable gross profit per unit sold and the ability to swap vehicles with other dealerships,” the survey documents said.

“The survey results show that many of the major brands (manufacturer or factory) in Australia encourage their affiliated dealerships to participate in cyber-car schemes or practices.

“We have not provided a publicly available percentage analysis at this stage. VACC is awaiting legal advice on how dissemination of this analysis should take place.”

It said that dealers participate in cyber-car schemes for reasons including:

  • Monetary incentives from the manufacturer (90.1 per cent response), and
  • Pressure from the manufacturer (85.2 per cent response)

“Respondents describe monetary incentives as bonuses, factory rebates and other monetary offers that are utilised by manufacturers to entice dealers to buy and report cyber cars as sold,” it said.

“Failure to take up these offers can result in dealers becoming uncompetitive relative to competing dealers that do take up these offers and discount the price of such vehicles.”

In terms of manufacturer pressure, respondents reported that they are often placed under immense pressure by manufacturers and are thus presented with little alternative but to participate in cyber-car schemes.

Such pressures include:

  • Pressures to meet sales targets and KPIs
  • The fear of not meeting sales targets and consequently being performance managed
  • The fear of the dealer franchise agreement not being renewed.

“Respondents reported that these pressures are essentially manifested through requirements for Australian-based vehicle manufacturers/importers to meet sales volumes as determined by their respective parent company head offices based overseas,” the survey said.

“There were several consistent themes reported by survey respondents regarding impacts at the business level associated with dealer participation in cyber-car schemes.

“Foremost was reduced dealer profitability and long-term business sustainability, and this was manifested through lower gross profits per unit on cyber vehicles, as often the bonus monies received by dealers as factory incentives did not offset the price reductions necessary to sell these vehicles in the market.

“Compounding these lower gross profits were higher interest, storage and insurance costs associated with holding an excess vehicle stock that was both ageing and depreciating.

“The cost of providing a roadworthy certificate on pre-RDA vehicles was also cited as a further financial impost.

“VACC is currently in dialogue with VicRoads in pursuit of changes to the Road Safety Regulations that will provide relief to dealers on this issue.”

The survey said that other key business impacts reported by respondents included the fact that often dealers did not know what the exact cost of a pre-RDA vehicle was, as the large factory incentives created a wide variable margin.

“This meant that two identical customers could buy the same vehicle for vastly different amounts depending on the time of the month or circumstances surrounding pre-RDA and this effectively eroded customer trust in dealers.

“Increased stress on the business due to the threat of termination of the franchise agreement and the complexity of managing two or three different ‘classes’ of stock were also cited as further business impacts.”

Most respondents (63 per cent) supported a ban on cyber cars while 19 per cent believed that a ban on cyber cars would have a negative impact on business profitability, as they would struggle to achieve target and thus fail to receive manufacturer incentives.

“Some dealers reported that they earn most of their profit in the final quarter of the year due to back-ended volume bonuses, and with cashflow pressures from PAYG company tax, are forced to remain on the pre-RDA system,” the survey said.

“A further 18 per cent of respondents were unsure of the impacts of a ban on cyber cars, stating it depended on the manufacturer response and the flow on impact to rebates and targets.

“Most of this group believed that a ban on cyber cars would inevitably need to be supported by reductions in targets from manufacturers in order to avoid negative gross profits selling vehicles.”

By Neil Dowling

KPMG
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