Irish Motor Management
May/June 2010
The first quarter of 2010 has seen a marked increase in the new car sales and the industry is in a stronger position than this time last year. However, with the most vibrant sales period of the year now behind us, Michael Neary, Partner, Corporate Finance, Grant Thornton, warns it is vital that dealerships do not lose focus on managing their cashflow.
According to figures released by SIMI, new car registrations are up 31.1% in the first three months of this year compared to the previous year. A total of 42,554 new passenger cars were registered in the first quarter of 2010 in comparison with 32,447 in 2009. These figures were achieved despite snowfalls and freezing conditions in early January that hindered consumers in getting to dealership forecourts. While new cars registered in January 2010 were only up 5% on the corresponding month last year, February and March have seen increases of 39% and 78% respectively, although from an admittedly low base. The SIMI is now predicting that’s its initial forecast of 70,000 new cars for the year will be exceeded.
Aftersales – important cash generator
The increase in car sales in the first quarter of the year has improved sentiment within the industry. The sector is looking healthier compared to this time last year. However, with the peak sales months of the year now in the past, it is hugely important that dealers do not lose sight of the need to keep generating cash in the months ahead. A key element of this will be in the provision of aftersales services. Dealerships need to actively promote these services to maximise the cash they can generate. Detailed cashflow analysis needs to be undertaken for each type of aftersales service to ensure these revenue streams are profitable. Where individual service lines are loss-making, serious consideration needs to be given to restructuring the service offering to improve efficiency.
Dealerships also need to be careful not to get ahead of themselves too quickly with signs of an upturn in the industry. Costs still need to be strictly monitored and controlled, as increased sales also bring the temptation to start re-hiring. However, cost savings achieved to stay afloat last year can be lost quickly and careful analysis of a dealership’s cashflows will need to be undertaken before any decisions are made.
VAT changes
The impact of the change to the VAT margin scheme for second-hand cars is another factor which needs to be closely monitored in looking at the cashflow and working capital of a dealership. VAT calwbacks under the old system were effectively ended last year. The new scheme took effect from January 1, 2010. Dealerships will now account for VAT on their margin on used car sales.
So, in conclusion, while the signs are positive, the need to retain focus remains. Appropriate analysis and understanding of a dealership’s cashflows remains the key to managing the business and being positioned favourably to take advantage of a continued upturn.