Consolidation in Irish motor industry expected as the New Car Sales Market Suffers Globally.
Consolidation in Irish motor industry expected as the New Car Sales Market Suffers Globally.
Deloitte Ireland has today (July 20th 2020) published Ireland’s Motor Industry – Driving Forward, a report examining the challenges facing the motor industry in the wake of COVID-19 and the likely impact of the crisis on the future of car sales and aftersales services over the next 24 months.
Andrew Byrne, Director, Financial Advisory at Deloitte said: “While the scale of the Covid-19 pandemic has yet to fully materialise, what is known with certainty is that new car sales in Ireland were down 96% in April, 72% in May and 28.4% in June[1] when compared year-on-year with 2019. As economies slowly emerge from lockdown, and manufacturing production is slowly grinding up through the gears, we expect significantly slower rates of production, with social distancing measures being introduced in plants all over the world.”
Consolidation
“Our review of the market reveals that some redundancies in the sector will be unavoidable and expected in Q4 of 2020 and into 2021,” said Byrne. “Any dealer who was struggling pre-pandemic may trade through 2020, possibly utilising the Revenue debt warehouse scheme, but with 2021 expected to be as challenging as this year, there will be casualties arising. As it is perceived there are too many independent dealers to service the current levels of demand, there will likely be some consolidation of dealerships in the medium term.”
Proactive
“New car sales are reducing globally and Ireland is no exception. There will be significant reduction in new car sales this year – for the fourth consecutive year – coupled with a possible slowdown in the second-hand market over the coming 12 months. Considering the level of overall economic uncertainty over and above this, it is difficult to see that that there won’t be casualties in this sector emerging in late 2020 or 2021. This will likely result in an overall reduction in the numbers of branded and independent motor dealers.”
“Deloitte would urge business leaders in the sector to continually monitor their financial performance, document the rationale for taking decisions at Board level and seek to avail of the appropriate professional and financial advice should they encounter difficulties. Acting early in times of crisis – which may involve some form of restructure – may lead to a leaner, more efficient organisation with increased chances of survival.”
Second-hand bounce
Pent-up demand, coupled with the additional savings many families have garnered while working from home and a likely reduction in consumers travelling abroad, may lead to many customers seeking higher-spec, second-hand vehicles rather than opting for new vehicles, according to the report.
“It remains to be seen whether the public will be ready to continue to make these significant purchases – usually second in size only to a house purchase – in the current environment,” Andrew Byrne continued.
According to Deloitte’s latest State of the Consumer Tracker, in early June 23% of Irish consumers reported being concerned about making upcoming payments and 41% were delaying making large purchases; 58% of Irish consumers indicated they were planning to keep their current vehicle longer than originally expected, up 1% since the previous index.
“Many factors are presently at play which affect these larger purchase decisions: job security; economic indicators; falling GDP; ability to secure finance; conflicting messages about Electric Vehicles, to name a few,” Byrne concluded.
References
[1] https://stats.beepbeep.ie/
