AS WE finish off the calendar year 2024 and accelerate toward 2025, the Australian automotive industry finds itself at a pivotal crossroads. 

It feels like every day there is a mammoth change or shift that not many would have predicted. 

Recent announcements from Nissan, Stellantis and Volkswagen regarding their market positions and economic viability have come as a shock even though this fallout is a direct result of some questionable decisions along the way.

With shifting global dynamics, evolving market conditions, and operational challenges, dealership businesses must adapt swiftly to maintain momentum and seize emerging opportunities. 

But all is not lost. Here are the top 10 challenges and trends shaping the motor industry in 2025—and how forward-thinking dealers can position themselves for success.

Market trends: adapting to global disruptions

1. Chinese OEMs as industry disruption 

Chinese manufacturers are revolutionising the automotive industry, leveraging a 25 per cent production cost advantage in electric vehicles (EVs) according to a UBS study. 

This disruption in EVs mirrors the upheaval caused by Chinese flat-screen display makers over their Japan and South Korean rivals.Think TCL vs Sony and Panasonic. 

Dealers must tread carefully in choosing Chinese brand partners, aligning with those offering sustainable growth and profit potential.

Pitcher Partners suggests looking at distribution partners as a go-between layer, making the negotiations a level-playing ground and ensuring the long-term viability of the Chinese brand or brands represented. This means any proposals to distribute and retail a brand directly with a Chinese brand is fraught with difficulty.

2. Trump’s re-election: confidence vs. protectionism

Donald Trump’s return to the White House brings a mixed bag or outcomes for the Australian motor industry. 

On the one hand, heightened consumer and business confidence driven by Trump pro-business and lowered tax policies may boost vehicle sales (oddly as the USA politics has an indirect influence on Australia). We’ve already felt the Trump-bump to consumer confidence in Australia in mid-November. 

On the other hand, protectionist policies for the USA could lead to Australia becoming a dumping ground for surplus OEM stock in particular from Chinese manufacturers. The government will need to step in to ensure the existing players are protected and the new entrants have the right intentions for the market. NVES unchecked in its current form, in particular, presents a precarious situation for the federal government.

3. NVES: A political football and industry catalyst

The implementation of the National Vehicle Emissions Standards (NVES) will be clunky (run on an $80m spreadsheet) and cause a stir in the first quarter of CY25. 

This will die down as the impact in year one is minimal and the traditional OEMs will have loaded up on ICE stock to get them through the first half of 2025. However, NVES will become a contentious issue during Australia’s May federal election. 

Despite the initial challenges, NVES has prompted OEMs to reconsider their long-term strategies in the Australian market, with some transitioning to distribution models in the Australian market or exiting completely in the next five years.

4. Market shift from NSC (national sales company) to distributor dominance

Australia’s fragmented market, that is 75+ brands selling just 1.2 million new units annually, cannot sustain its current structure. The rise of distributors will streamline these brands offerings, ensuring models that suit local demand and benefit both dealers and consumers. 

This shift will also elevate the importance of the used car market. No longer will a brand be able to sell ~10,000 units in Australia and employ hundreds of staff to do so. The economics haven’t stacked up for over a decade. The implementation of NVES and Chinese competition will force the hand of many brands to distribution.

5. Retail automotive market consolidation has attracted new entrants

The consolidation of retail automotive giants continues, creating opportunities for new overseas players that have previously ignored Australia. 

Australia for some time has been ignored by the very large European and USA retail automotive groups. This all changed with Penske’s acquisition of Porsche dealerships in Melbourne this year. 

With margin compression and cost base increases due to inflation creating a vice grip on profit, consolidation will need to accelerate to ensure survival of many groups. This trend underscores the importance of scale in remaining competitive, as the big get bigger and acquisitions reshape the landscape.

Operational challenges: maximising efficiency and profitability

6. Gross margin compression: a return to the mean

New and used car margins are settling back to pre-pandemic levels. Dealers must refocus on the fundamentals of selling cars; emphasising emotional engagement over pure economics.  

This means getting back to the basics and following whatever form of the road to a sale the dealership has implemented. If the sales process only focuses on economics, there will be no gross left and this is unfortunately the path of least resistance. 

Productivity improvements, particularly in sales staff, will be critical to retaining gross profit and feeding the funnel for the more profitable departments in the dealership.

7. Inflation: the silent profit killer

Rising operational costs are here to stay, requiring dealers to tighten expenses and optimise staff productivity. Inflation is deceptive as it has a cumulative impact when it’s measured only on a period v period basis.  

For example, inflation has been ~25 per cent in the last 3 years but the recent inflation reading is less than 3 per cent. Refocusing on high-margin areas such as Finance & Insurance (F&I) and service departments will help counteract inflation’s impact.

8. Pressure on used car values

While used car volumes will remain strong, values are expected to decline due to new car market oversupply and aggressive discounting according to Cox Automotive Australia.

Dealers must strategically manage stock levels and leverage tools like Autograb to acquire inventory at competitive prices. The profit in used cars is in the buying, this is an old adage but apt in the current market. Dealers need to be careful not to hold too much stock and not allow aging to get out of control. 

9. Slowing new car sales

Pitcher Partners believe new car sales will drop to 1.1 million units in CY2025, with a particularly sluggish first half. 

Interest rates aren’t going to be cut until maybe the second half of 2025 due to tax cuts (stage 3) and government handouts improving the discretionary income of the consumer. This will impact new car sales as the consumer will feel the impacts on their mortgages and overall cost of living pressure. 

However, anticipated interest rate cuts in the latter half of the year should boost consumer confidence, driving stronger sales and compensating for earlier losses.  As seen in the USA and other economies, the tax cuts will take ~six months to take hold and improve consumer confidence.

10. F&I resurgence: untapped potential

The Finance & Insurance department is ripe for revitalisation in dealerships. Since the ASIC review and Royal Commission in 2017-2018, many dealers have deprioritised finance giving the reviews as an excuse. This has left significant profit on the table. 

By re-engaging with F&I in the sales process and providing competitive rates, dealers can offset gross margin losses in other departments.

Opportunities amidst challenges

The Australian motor industry’s evolution presents significant opportunities for agile and prepared dealers and other industry players. Whether it’s leveraging the growth of Chinese brands, capitalising on market consolidation, or maximising operational efficiency, success lies in strategic adaptation.

Footnote: Pitcher Partners specialises in guiding the motor industry through these complex transitions and is available to help industry players explore how they can thrive amidst these changes and then chart a course for sustained success in Australia’s ever-evolving automotive landscape.

Steven Bragg is a partner at Pitcher Partners