Can teh Irish Car Trade save itself?

--amadeus--

DISCLAIMER: Before I start I will admit I don't have any direct experience in teh motor trade. I have traded classics for a few years but strictly as a hobby. However my job involves going into companies and giveing business advice, usually on strategy and problem solving - with a particular emphasis on sales and customer service. So this is kind of an interested outsiders idea of what the trade can do...

~~~

The motor trade is on it's knees at the moment. Dealers are collapsing all across teh country, trade is at a standstill, forecourts are stuffed with cars that cost more than the market will now pay and every garage I know has reduced either working hours or staff (or both). At the moment (and understandably) the trade seems to be acting in self interest - each is bailing out thier own boat in teh hope of surviving the storm. I have a few ideas - some radical, some simple - that I think might help. What are yours? What do people in the industry think?

Anyway as I see it the principal issue is simple oversupply. Forecourts are jammed and values of stock have plunged. No one is buying privately so everyone needs a trade in to buy a car. But dealers don't want trade ins as they won't be able to shift them so they can only offer a derisory value for teh trade in and teh punter walks away. As dealers go under stock is siezed by liquidators who flog teh cars cheaply and this only makes conditions worse.

Let's take an imaginary dealer - he has 10 cars in stock that he values at €200,000 but in reality they may be worth €100,000. Now all businesses ultimately fail for teh same reason - a lack of cash. You can have all the stock in the world but no money to pay the bills and you fold. A dealer refusing to trade in this condition is hung up on sunk costs. they need to decrease stock (even at a paper loss) and increase liquidity to restore normality to the market.

Under the current "acting alone" impulse this can't happen. However teh solution to an over supplied market is to move the oversupplied commodity to a market where that commodity is in short supply. So an industry backed company could export all dealers excess stock to (for example) India. In India there is a huge and growing middle class crying out for mobility, they drive on teh correct side of the road and they certainly have the market. Dealers could give the car to teh export copmpany who ship teh car to India and sell it on at a fixed cost to the dealer. Whatever the car is sold at the dealer gets to keep. To maintain dealer liquidity the cost of tarnsport and sale can be deducted from the sale.

So take our fictional dealer. He ships 6 of his 10 cars off to India and clears (for example) €4,000 per car. On paper he has taken a huge hit but he now has - crucially -€24,000 in cash his account to meet his financial liabilities. Possibly even more important he has a clear forecourt so he can once again trade normally (accepting trade ins).

Just a thought, interested to hear what you guys think and if you have other "out of teh box" ideas on solving the current crisis

OldmanMondeo

Not a bad idea, sure didn't we take are still take second hand Jap cars. The main problem would be the price caused by VRT. If the UK did the same thing they, as anyone who has looked into importing a car will tell you, would be able to undercut Irish prices. for this to work I reckon VRT would have to be abolished and Motorists would have to accept crap trade ins but with reduced car prices, from VRT being scrapped. This will possibly give a short term fix, say 10 - 15 years, we might be back in the same senaro.

dodgyme

I know alot of people who didnt buy into the celtic tiger I need a big fancy car or an suv. These people are driving round in 1994-00 cars and would, I believe, be tempted to buy a new car if a really attractive industry wide scrappage scheme was introduced.

Drummerboy08

Thats actually a very good idea IMO. I havent heard anyone else come up with anything quite as original.

I think the only problem with it however is, many dealers have been in the trade for years. Most would see themselves as being too proud to take a hit like that, or to be seen to be exporting vehicles. Dont ask why, its just a mentality a lot have. I've been in the motor trade for the past 4 years or so, alot of the dealers i have dealt with, and currently deal with have the attitude of "we'll sell our way out of this crisis, we are too big to go down".

It wont work like that, i think you are right that many dealers have to move stock regardless of the hit they take, if they want to remain in the position to trade in the new year.

Expect to see some of the dealers who have sense doing this come february or march when they realise even the new car sales wont save them.

--amadeus--

I agree that VRT should be abolished. All it has done is distorted teh market but it's worth a lot of money to a govt that brassic so don't expect any changes anytime soon.

As for scrappage schemes - not going to happen. As I said I'm not on the inside so I don't know details but I doubt that the car industry has teh cash to finance a scrappage scheme - if they can't afford to give "good" trade in values on "good" cars why would they be able to afford to give €5K or whatever for a crock? And the Govt certainly won't pay for it - the money just isn't there. Besides which there are reported discounts of up to 25% off new cars at the moment - that's worth your scrappage alone!

Drummerboy - I agree, at the minute people are assuming that they can trade out of teh difficulty. In that context they are viewing others going to the wall as a good thing ("less competition for the few buyers out there") but without seeing the real problem (stock oversupply) that dealers going under is making worse. If I were in the trade my worry would be that it may be too late by the time they do realise the true issue.

Owen

The place I work for was one of the first companies to drop used car prices before the VRT changed even happened. On top of that, we've been systematically dropping prices every month - so we're in an excellent position now to trade for the new year, about 1/6th of the value of the stock we had in April. It has been a tough year financially, but 2008 was a write off anyway. 2009 won't be much better.

maidhc

--amadeus-- wrote: »

So take our fictional dealer. He ships 6 of his 10 cars off to India and clears (for example) €4,000 per car. On paper he has taken a huge hit but he now has - crucially -€24,000 in cash his account to meet his financial liabilities. Possibly even more important he has a clear forecourt so he can once again trade normally (accepting trade ins).

Are you not assuming though he actually owns the cars in his forecourt?

My guess is the bank has a charge over the unsold cars, and to clear this loan will require setting the cars for more than they are currently worth.

Jaysoose

dodgyme wrote: »

I know alot of people who didnt buy into the celtic tiger I need a big fancy car or an suv. These people are driving round in 1994-00 cars and would, I believe, be tempted to buy a new car if a really attractive industry wide scrappage scheme was introduced.

I never really understood peoples attitude "i need to buy a beemer with the banks money now" for the last few years, i know a few people that have car loans for €20,000+ that think its normal to have this level of debt tied up in a car which essentially they cant afford.

I imagin its nice to have a big car but the same people cant afford to go for a pint!!

Drummerboy08

On the issue of scrappage schemes -

I know of two dealers in Wexford who are currently running one, a Main Ford Dealer, and a Hyundai dealer - the Ford Dealer offering €2000 against a new or used car. Not sure what the Hyundai dealer is offering.

I also agree that VRT should be done away with - however with the recent cutbacks in the government, i cant see them doing away with a large source of income.

Mr. Presentable

Jaysoose wrote: »

I never really understood peoples attitude "i need to buy a beemer with the banks money now" for the last few years, i know a few people that have car loans for €20,000+ that think its normal to have this level of debt tied up in a car which essentially they cant afford.

I imagin its nice to have a big car but the same people cant afford to go for a pint!!

Ah yes. My aunt in MABS has people in 2008 cars coming in looking for help with the ESB bill.

R.O.R

maidhc wrote: »

Are you not assuming though he actually owns the cars in his forecourt?

My guess is the bank has a charge over the unsold cars, and to clear this loan will require setting the cars for more than they are currently worth.

I think you've hit the nail on the head here. Most large dealers will have their new and used stock funded by the likes of GE (although not so much from this week onwards), Lombard or Volkswagen Bank. To sell everything at a loss means paying a huge lump sum - if you keep most of the stock but just pay off the interest on the stocking account it's not such a big hit.

NewApproach

Jaysoose wrote: »

I never really understood peoples attitude "i need to buy a beemer with the banks money now" for the last few years, i know a few people that have car loans for €20,000+ that think its normal to have this level of debt tied up in a car which essentially they cant afford.

I imagin its nice to have a big car but the same people cant afford to go for a pint!!

Many well off people buy their cars on credit. It dosnt mean they cant afford them. To all bar the super wealthy taking a hit of €60000+ in one lump sum is not feasible.

Just because people have cars purchased on credit dosn't mean they can't afford them, far from it.

--amadeus--

maidhc wrote: »

Are you not assuming though he actually owns the cars in his forecourt?

My guess is the bank has a charge over the unsold cars, and to clear this loan will require setting the cars for more than they are currently worth.

My assumption was that the dealer would have bank loans but not necessarily tied to individual cars (is that teh norm - I would have thought it more common to have a line of credit rather than a series of individual loans?)

In the case of outstanding short term (mainly overdraft) debt the dealer would need to revise his business plan and go to teh bank with a view to move it to cheaper long term managed debt. In the case of existing long term debt meeting the repayments is the key and to do that you need cash in your hand (I have experience of this - the banks will come down on you hard if you miss payments and aren't talking to them). The only way to have teh cash to meet your repayments is to shift stock, even if at a loss.

On "scrappage" - in reality that's just another word for a discount. Basically they are saying they'll give youa €2k discount and get rid of your old car at the same time. Not much use to someone who has a car worth more than €2k, TBH.

[EDIT: cross post with ROR who clarified]

If the likes of GE or Lombard do have a hold over individual cars then that complicates matters a lot. Only feasible way to get this off teh ground in that case would be to move that into longer term debt that isn't tied to stock. Not easy in the current climate but not impossibel either. After all it's in teh financiers interests that the business stays viable.

Lord Nikon

Vrt only hits you when you import a vehicle, and if VRT is done away with, you can forget about the Irish secondhand market.

Dealers could still make money on the used car market by importing from NI/UK, and pass some of the savings onto the costumer. Win win situation.

E92

There are 2 big problems for the motor trade - VRT and more importantly exchange rates.

Neither of which is in the trade's control.

As long as the exchange rate with sterling remains the way it is then people are always going to be buying in the UK.

Even with the unrealistic OMSPs revenue are using you'll still save a packet by going across the pond.

And the UK will have cars with more powerful engines, better maintenance and much higher spec levels too.

So basically you're saving a fortune and getting a superior product in return.

We as a nation need to tackle a problem of our own making.

The importers don't sell bottom of the range crap because they feel like it - they sell the crap because they know that that is what sells here. Why bring in something if you can't sell it? If they thought Irish people wanted more equipment and more power then they would bring better cars in - they'll make the manufacturer more money this way and the manufacturer might give them a bigger bonus or something to reward the importers for making the manufacturer more money.

However we do live in a free market and we do have capitalism - and that means you sink or swin - instead of bitching and moaning and trying to pretend that a problem doesn't exist, which is what the SIMI are doing - you do something about it like Tom Hogans in Galway who will give you a free Aygo if you buy a used Lexus worth between €39 and €65k.

You drop prices - you do what ned78's garage did.

Take the bull by the horns and do something about it. There are good times and there are bad times in capitalism. Deal with it.

Now that we have finally moved away from a culture that knows the price of everything and the value of nothing - people will buy used cars at the right price.

The proof of this is what ned78 says about his garage - his garage are "in an excellent position now to trade for the new year, about 1/6th of the value of the stock we had in April".

It's over to the dealers really. But have they the sense to do this? Only time will tell.

--amadeus--

neuromancer - how will dealers importing more cars from the UK on top of the cars they already have that they can't sell help matters?

E92 - excellent post. People will still buy if they see value in teh deal and it is up to dealers to find creative ways to make that value.

Likewise there has been in the past a certain arrogance in certain dealerships - I know of one that closed totally at weekends until very recently for example. Improved levels of customer service, training sales staff to up and cross sell, better value at main dealer service departments, customer friendly opening hours - we could all list a huge list of improvements that are both easy and cheap and any dealership not making those changes won't survive against those that do.

R.O.R

--amadeus-- wrote: »

[EDIT: cross post with ROR who clarified]

If the likes of GE or Lombard do have a hold over individual cars then that complicates matters a lot. Only feasible way to get this off teh ground in that case would be to move that into longer term debt that isn't tied to stock. Not easy in the current climate but not impossibel either. After all it's in teh financiers interests that the business stays viable.

I'm pretty sure it's secured debt against specific vehicles, so it's a lower interest rate than usual.

If this debt were to be switched from secured to unsecured then interest rate's would have to increase to reflect the increased risk, if they want to provide credit at all.

In the event dealers can't pay the banks then the bank will be left with the stock, and in a lot of cases with the new Showrooms - a fancy place to sell from.

Lord Nikon

--amadeus-- wrote: »

neuromancer - how will dealers importing more cars from the UK on top of the cars they already have that they can't sell help matters?

Well, I am looking at what they should be doing in the future, people do like to trade used for used too, and at the moment the used car market is the place to be in.

They should be moving stock out to Indy usedcar traders, and taking a hit. Instead of taking a hit on one car at a time, move them all off the forecourt to the Indy and get the cash flowing again.

Jaysoose

NewApproach wrote: »

Many well off people buy their cars on credit. It dosnt mean they cant afford them. To all bar the super wealthy taking a hit of €60000+ in one lump sum is not feasible.

Just because people have cars purchased on credit dosn't mean they can't afford them, far from it.

The majority of people are not wealthy to be fair and the people im talking about dont earn anything like a huge wage but still drive 3 series etc and dont have a pot to piss in...at least they have the car to create the illussion of wealth.

Jaysoose

nipplenuts wrote: »

Ah yes. My aunt in MABS has people in 2008 cars coming in looking for help with the ESB bill.

"But at least mildred in number 27 has an older car than us.....another lidl brand sausage dear?"

dodgyme

Jaysoose wrote: »

I imagin its nice to have a big car but the same people cant afford to go for a pint!!

exactly

OldmanMondeo

Apart from the immidate fix, which amadeus gives a good idea on, the trade and goverment will need to look into the future to ensure that they don't get into this state again. First off would be to reduce / remove VRT.so prices could be nearer that of the UK and reducing the amount of imports. Secondly the "extras" that the UK get and we don't , i.e. getter HP, trim levels, should match the UK. This would aloow the Irish customer get like for like. The last part would more be up to the motorist to look at the cost of changing rather than the value of their own car agianst a newer car.

alias no.9

At times like this, cash is king. Dealers need to recognise that and generate liquidity by clearing old stock, albeit at a loss. Many businesses trade at a loss during hard times but generate enough cashflow to service their debts and position themselves for better times, why should one industry be different.
They also need to learn how to sell again, much like auctioneers, they've spent the last 10 years working as order takers, no better than the counter staff at McDonalds. Customers came in, read the price list (menu), picked out what they wanted and the sales person arranged payment and delivery, not much skill involved. In times like this, good sales people will shine.

Back to the OP, didn't it happen in the past that lots of second hand cars were shipped from Ireland to Malta?

Jaysoose

I think its fairly obvious that there is no way out of this until the banks start lending again or the goverment does something with VRT, people have been living beyond their means for years and now that the banks have pulled the plug there is a reduced customer base for new/nearly new cars.

The motor industry relied on the fact that there was a never ending supply of credit for everybody and hiked up the price knowing people would pay it just to have the nicest car they could afford. The whole industry was based on a bad economic system that perpetuated the same myths over and over again. The Party is over people its time for the fire sale to happen, the goverment needs to scrap VRT for the dealers to stand a chance as people will import till their hearts content.

my 2 cents......:mad:

maidhc

Jaysoose wrote: »

I think its fairly obvious that there is no way out of this until the banks start lending again or the goverment does something with VRT,

Be careful what you wish for. The only way adjusiting VRT will help unclog the forecourts is by rising it and making new cars more expensive.

Jaysoose

maidhc wrote: »

Be careful what you wish for. The only way adjusiting VRT will help unclog the forecourts is by rising it and making new cars more expensive.

Then i go back to my other comment ...The party is over guys.

mickdw

maidhc wrote: »

Be careful what you wish for. The only way adjusiting VRT will help unclog the forecourts is by rising it and making new cars more expensive.

yes and im sure it will happen. I think they will might just complicate the vrt a bit further by adding a cc based addition to the emmissions bands thereby catching the bmws etc for some extra tax.

Alternatively, as I stated somewhere here last week, if the government were to put an additional tax on used imports to make them more expensive than irish cars, it would be a big help. this could not be done by vrt increase as that would effect irish cars. People say this cannot be done with the EU & free movement of goods etc but the gov. could apply a duty based on additional works required to verify identity and roadworthyness of used car coming into the country. So if they slapped another 10 or 15% on imports, under the name of a verification tax, it would be legal (well legal enough for the irish government anyway) and would put a stop to the uk cars

--amadeus--

Politically I can't see that happening - especially in teh wider Lisbon context. Ireland needs to be seen to be uber-European and naked protectionism of that sort won't do our politco's any favours. Apart from anything else it would also highlight the (currently dormant) issue of VRT which is still pretty dubious from a free movement of goods POV.

And regardless, fiddling with the taxes won't solve the real problem. You abolish VRT overnight and every used car in the country (on a forecourt or on your drive) is instantly worthless. Increase the VRT and no-one will buy new cars and it puts our cost base up even higher for companies who have to run fleets. VRT does need to go but phased over years.

I still think the core issue is simple oversupply. Too many cars are sitting around at too high a perceived value (again in both private and dealer hands). The slump in value has left a lot of cars in negative equity so even if people were willing to take a lower trade in value they can't. Now give it 3 or 4 years and all those loans will be paid off (or cars repossessed) and people will be willing to accept the lower values (the perceived value of the car will have fallen in line with the reduced debt and the age) but by that stage there won't be many dealers left.

So back to my original point - we can either wait years for the situation to resolve itself or dealers can get proactive in some "out of the box" way.

mickdw

Im convinced we will get some increases in car taxation. They never intended to have executive cars running around with 16% vrt and 150 road tax. give it another few months and every diesel car will be in the bottom 2 bands. Something will have to change so they may as well try to cure the industries problems at the same time.

Owen

OldmanMondeo wrote: »

The last part would more be up to the motorist to look at the cost of changing rather than the value of their own car agianst a newer car.

I've been saying that for ages. Nice to hear someone else say it too!

Lord Nikon

mickdw wrote: »

Alternatively, as I stated somewhere here last week, if the government were to put an additional tax on used imports to make them more expensive than irish cars, it would be a big help. this could not be done by vrt increase as that would effect irish cars. People say this cannot be done with the EU & free movement of goods etc but the gov. could apply a duty based on additional works required to verify identity and roadworthyness of used car coming into the country. So if they slapped another 10 or 15% on imports, under the name of a verification tax, it would be legal (well legal enough for the irish government anyway) and would put a stop to the uk cars

Do you work for Fianna Fail?

Yes, this is a good idea with regards to getting the motoring industry out of a tough spot, but does nothing for the consumer trying to shop around. More expensive imports slaps in the face of someone trying to save a few quid.