MAJOR automotive industry bodies have today urged the federal government to exempt dealerships from turnover and employment thresholds that they say are crippling businesses and forcing unnecessary sackings.

Further, the Victorian Automobile Chamber of Commerce (VACC) and the Motor Trades Association of Australia (MTAA) say that the government has misread the automotive industry in setting a $50 million turnover threshold.

In their joint submission to the government, the two organisations have called for the removal of the $50 million annual turnover threshold stating that “turnover does not equal profit”.

“The very nature and price of the products retailed by dealers will result in many dealers not qualifying for the COVID-19 relief measures due to the $50 million turnover threshold,” the submission said.

“The issue is aggravated further for entities that are multi-franchised as the annual turnovers of those franchises is combined.

“Dealers who are part of entities that turn over more than $1 billion annually fare even more negatively as they must show a downturn of turnover of at least 50 per cent to qualify for JobKeeper.”

The submission spells out that dealers “remain confused” why governments use turnover as the sole metric for relief package qualification.

“It appears the government is of the opinion that new-car dealerships have the benefit of a profitable business model and financial resources to continue operating throughout these extraordinary trading circumstances,” it said.

“The decisions of government suggest they are not (or were not) aware of the substantial distress the industry was experiencing prior to the outbreak of COVID-19, despite this being set out by an internal Deloitte Motor Industry Services report that advises that 36 per cent of Australian dealers were already operating at a loss before the crisis hit and 20 per cent were breaking even.”

The Deloitte Profit Focus report showed that dealer net profitability for the second quarter of 2019, as a percentage of sales, was 1.2 per cent. That average profit in Q1 was 1.0 per cent.

In March 2020, an update from Deloitte showed that the profitability percentage for both 2018 and 2019 was benchmarked nationally at 0.90 per cent.

“The overcrowded and overregulated new-car dealer market has been browbeaten into a belief that an acceptable level of net profit as percentage turnover is two per cent,” the submission said.

“Many dealerships, even in an optimum trading environment, struggle to get near that and only the top 10 per cent of dealers actually achieve this outcome.

“It is the strong view of VACC that you will not find any other industry that would even come close to a net profit return on sales of two per cent or less.

“Factoring that two per cent of a large-volume turnover may appear healthy it is important to be reminded that the difference between it being a two per cent profit and falling into the red can be as little as a single dealership department underperforming.”

It said that a $50 million threshold criteria applying to a new-car dealer, where net profit can be a negative return, is at odds with a fast-food franchise which may have an annual turnover of more than $50 million and static pricing and expects a return of about 10 per cent of revenue.

VACC CEO Geoff Gwilym, who has been pushing the case for dealers with treasurer Josh Frydenberg and other federal cabinet members, said: “For too long we have seen dealers be scrutinised and penalised by governments for a range of assumptions – including profit, cyber cars, and so on – and now is the time for government to truly understand the dealer predicament.

“It is VACC’s firm view that the intricacies of the threshold criteria, such as applying an aggregated turnover of an entity as opposed to the turnover of an individual dealership, when applied to the relief packages is not reasonable when applied to dealerships,” he said.

“VACC would respectfully request that an industry-specific exemption be immediately granted to the automotive dealer sector.”

The submission, which was delivered to the government by MTAA CEO Richard Dudley, said that “it is not reasonable that approximately 70 per cent of the biggest automotive industry employers in an overcrowded, overtaxed and low profit-yielding industry is not able to qualify for the relief packages”.

These packages available to other industries include Boosting Cash Flow for Employers, protections mandated under the National Cabinet Mandatory Code of Conduct for SME Commercial Leasing Principles during COVID 19 and apprentice wage subsidies.

The VACC and MTAA said that by allowing dealers to access the government’s relief packages “they will be able to continue to trade, collect taxes, employ Australians and contribute to their local communities”.

The submission was written with input from the Victorian Automobile Dealers Association (VADA) from its database and applies also to farm machinery, commercial vehicle and motorcycle dealerships. It will also be followed by a specific paper for the Victorian government that will be sent to VADA members early next week.

The submission supports previous lobbying efforts and policy positions put forward by VACC and MTAA prior to and after government COVID-19 relief packages were announced.

The key recommendations within the submission are that the federal government:

1. Exempts automotive dealer franchises from staffing and turnover thresholds as currently mandated in Boosting Cash Flow for Employers relief, apprentice subsidy and commercial tenancy packages.
2. Exempts all automotive franchise dealers with an annual turnover of $1 billion or more from the 50 per cent turnover downturn criteria mandated within the JobKeeper wage subsidy.
3. Advises the national cabinet that automotive franchise dealers should also become eligible for all state-sponsored relief and stimulus packages.
4. Extends the deadline to the enhanced instant asset write-off until September 30, 2020.

By Neil Dowling