INDUSTRY thought leaders are telling GoAutoNews Premium that what turned out to be the most profitable period ever for car retailers, built on stock shortages, is coming to an end and that changes to the economy are combining to create an environment in the showroom where sales staff are going to have to learn how to sell cars again.

The motor industry lead at Pitcher Partners Sydney, Steve Bragg, said that the early sign of sales challenges returning to the showroom was the increasing number of financial controllers in dealerships reporting buyers asking to pull out of their orders.

“These fall-overs, people who have come in and ordered a vehicle, signed the contract, and then they say they don’t want the car any more, are on the rise.

“The financial controllers in dealerships are telling us it’s half a dozen to a dozen a day,” Mr Bragg said.

“Every day they are getting people ringing up saying that they want their deposit back and they’re not going to take delivery.

“At the moment, and for the next six to 12 months, they have people who want the car still waiting in the queue. So they just obviously shift the order across to others in the queue. But when those customers in the queue run out it’s going to be a problem and I think it’s coming in the next 12 months.”

Mr Bragg said that buyers face a number of fresh hurdles ranging from several price rises since they ordered the car, a drop in the valuation of the traded car and increased interest rates.

“The issue for a lot of customers – those wanting models that are hard to get – is they are paying way over the odds to get into the car.

“The average monthly new car payments have gone from $846 per month Q1 2020 to $1200 a month in Q4 2022. That’s about a 30 per cent increase and the average interest rate has gone from six per cent in 2020-21 to 12 per cent. For a home renter it is more like 16 per cent.

“The next hurdle is the trade is worth less than what you thought it was. When you brought it in you thought it was worth $X, now it’s at least 10 per cent less today.

“These customers are going to come in thinking the price on the car they are buying is $X but it has probably gone through one or two or three price increases; so it’s going to be more expensive.

“Most of the contracts, at least after 2020, have the variable price rate and that says that you basically pay the price on the day you take delivery. So if there’s been a general price increase buyers have to pay that increased price, not the price they signed up on the day they bought it.

“On top of this, the trade that was worth $50,000 upon ordering is now worth $40,000. And the interest rate where they thought it was going to be six is now 12.

“So even if they come back to the dealership and try to buy the car, people are going to struggle because they will decide they don’t want this car anymore. They will decide to just drive the one they have.

Mr Bragg said it is going to be increasingly difficult to get customers set.

“The key to this will be for salespeople to lower the sights of the buyer into something they can afford by putting them into a lower-priced version of the same car or a used version of the same car.

“It’s about used cars. It’s about longer finance terms. It’s about selling the payment, not the rate. It’s about Guaranteed Future Value (GFV) so you only pay for half the car anyway,” Mr Bragg said.

Steve Zanlunghi, Regional Director – APAC & USA for the global automotive sales consultancy, training and events group, Absolute Results, told GoAutoNews Premium that the motor industry “is operating in a two-speed economy here in Australia”.

“Broadly speaking, there are certain brands that have vehicles ready to go right now. In fact, some of them have already moved all the way back to pre-COVID days where I’m finding some are actually demoing up to hit some targets or starting to move cars into rental fleets.

“You have others that are still short of stock with long lead times over their entire model line-up. But that’s only a handful.

“Some now have stock on some models but if you dig into certain model lines, there’s a wait especially on some electric vehicles. Depending on the brand, it’s anywhere between six to 12 months on most electric vehicles.”

Mr Zanlunghi said that the arrival of stock in some franchises was leading to order cancellations increasing in dealerships.

“Dealers are finding when the cars are coming in they are calling the customer, but the customer is cancelling because they bought elsewhere from a brand that had cars to deliver. They did not want to wait the additional two or three months when they could take delivery within a week.

“So we are seeing cancellations for those brands that still have long waits and order banks because their buyers are just defecting over to the brands that were able to get stock into the market here.”

Mr Zanlunghi said that one of the challenges for dealers as stock levels increase will be to improve the skills of sales staff beyond that of order takers.

“A few of the dealer groups have told me that large percentages, almost half of some of their sales executives, have never actually sold a car during the times of normal supply.

“They’ve never been trained properly, because it’s been just ordered taking.

“So we’re having a lot of demand for our training products for just the basic road to the sale, customer handling, customer follow up; just all the basics. We have put together a sales executive boot camp that we’re working with some dealer groups and we are working with some OEMs who see the return to normal selling coming. So it’s no longer an order takers’ market.

Mr Zanlunghi said that a return to normal stock levels and retailing incentives had the potential to erode the valuation of dealerships that were not equipped to have buyers lined up for cars as increasing numbers of vehicles were shipped to dealerships.

“To avoid eroding the value of your dealership you really need to make sure that you’ve got plenty of customers lined up in the pipeline. And to get that to happen, you’re going to need to really have strong and thorough training of your people. In other words, you’ve got to transition them from order takers to sales makers.

“So instead of being reactive, dealers now need to be proactive, and you have to do that in order to maintain the valuation of your dealership.

“The valuations ultimately go back to the quality of the sales executives that dealers are relying on to sell the cars. If you have poor sales executives, you’re not going to sell cars. And if you’re not selling cars, then the value of your dealership is going down unless you have a massive increase in your service department. But as we saw from Deloitte, really the new car sales over the past two years have been masking a decline in the aftersales department.

“So what I’ve been telling dealers is: One, if you did not have a great financial year, or years that were near record, then you need a plan. And that plan is taking an internal look at your dealership, building up your processes and making sure they’re shored up.

“Alternatively the values of franchise right now have never been higher and it might be time to exit if it’s not working for you.

“But if you are going to hold on to it and you want to maintain the value of your franchise, then you are going to need to make sure that your people are trained properly ultimately with the aim of keeping dealers and brand retention rate high,” Mr Zanlunghi said. “Because that’s who’s representing you, your dealerships and ultimately the brands you have franchise agreements with.”

Meanwhile GoAutoNews Premium has also been told by dealers that the order banks in some franchises may not have been as big and as robust as they thought they were because dealers were putting in orders that were maybe not real customers in order to get allocated vehicles to them because they knew that once the vehicle was allocated with such intense demand, they would be able to sell them right away.

By John Mellor