In this article, we review how the Irish motor sector has fared, thus far, in 2015, a year that witnessed new car sales surpass the 100,000 mark for the first time since 2008. We also examine how dealers can manage their finances to take advantage of the upturn in the industry, as well as highlighting the up and coming trends in the motor sector.
The first eight months of 2015 have seen the motor sector enjoy a period of strong growth, building on the momentum from 2014. Based on the current sales trajectory, new car sales for 2015 are likely to run close to 125,000.
According to the latest figures from the SIMI, there have been a total of 121,109 new passenger car registrations for the first nine months of the year September. This compares with 93,151 for the previous year, equating to an increase of 30%. Light commercial registrations have also seen a 49% increase, moving from 14,563 new vehicle registrations for the first nine months of 2014 to 21,643 in 2015. This highlights the positive economic outlook by Irish businesses for the short to medium term.
2015 was the third year of the new car registration system. Sales in July of this year were up 47% when compared to July 2014. On the other hand June is the only month in 2015 that new car sales were down against their 2014 counterpart, coming in at 14% lower year-on-year. These statistics illustrate the changing consumer behaviour regarding the timing purchases - something dealers should take note of when preparing budgets for 2016.
Emerging trends and stock management
It is important that dealers are commercially aware of trends within the industry to ensure stock selection matches consumer demand. This will avoid slow-moving inventory which ties up cash resources that could otherwise be put to more effective use for your business.
For example, the top three selling marques in Ireland for 2015 are Volkswagen, Toyota and Ford, respectively, showing no change from 2014. The largest riser in terms of marque for 2015 compared to 2014 is Nissan, who has increased its market share by 24%. The best-selling model for 2015 is the Volkswagen Golf, having sold 5,378 units thus far. This is the third year in a row that Volkswagen has maintained pole position as Ireland’s top seller. Interestingly, September’s sales statistics highlight that recent events in Volkswagen have not dampened Irish consumer’s appetite for the marque.
Other notable trends within the industry include the continued emergence of electric or plug-in electric hybrids, which have seen their sales jump by 66% year-on-year. There were 1,992 units sold in the first nine months of 2015, compared to 1,119 for the same period last year.
Failing to adequately identify these trends creates a risk for your business, as you may overestimate a certain model’s likelihood to resell and therefore overpay for trade-ins, which in turn will negatively impact cash-flow (i.e. as cash is tied up in stock sitting on the courtyard) and profit margins (i.e. to get stock to move may require a reduction in price).
Budgeting for 2016 and working capital management
Looking ahead to 2016, it is also important to take trends within the wider economy into account when budgeting and planning for your business. Each of the points below are likely to lead to greater demand for new cars, and, at present, 2016 sales should surpass 2015. For example:
- Irish economic growth is being forecast at 4.2% for 2016, which will mean more people in employment and more disposal income in the economy;
- there is still a large amount of cars on Irish roads which are more than 10 years old. These are subject to an annual NCT, which will be a drain on household income;
- there is a greater selection of finance options available with lower deposit conditions.
- the ESRI’s consumer sentiment index has remained consistently high, signalling the positive outlook that consumers have about their future prospects; and
- the budget has included a range of favourable tax reductions.
This positive outlook for the economy should be filtered through to sales forecasts, implying that dealers should budget for increased growth and revenue. The risk to a business from strong growth, however, is that insufficient working capital resources may negatively impact on your business’ margins (i.e. by driving up interest costs) as well as creating liquidity risks for your business (i.e. should there be an unexpected withdrawal of credit).
To address these risks, businesses should examine their current working capital management policy. This includes calculating your cash conversion cycle and reviewing how working capital is being funded. A thorough review will indicate:
- cash management efficiencies within the business. Failure to sufficiently manage cash can create liquidity problems or lead to paying unnecessary interest charges;
- how your business’ finances have coped with unforeseen demand (for example did your business use short-term financing to take advantage of a surge in demand in 2015 or was there sufficient stocking loans in place?);
- whether you have structured your business’ finances to deal with the new two-peak sales season (for example how efficient and accurate was your business’ management of inventory?);
- is your business over reliant on one source of finance to fund its working capital; and
- how accurate were your forecasts of working capital for 2015? If there was a large variance, you may need to investigate the assumptions that went into calculating the 2015 budgets.
The funding market has also improved with banks and alternative funding suppliers active in the market.
2015 has been a good year for the motor industry and this looks set to continue for the coming twelve months. We have outlined above that there are a number of positive developments which will incentivise consumers to purchase or upgrade their car. To take advantage of this rising tide, however, it is important that dealers plan for 2016 in order to have sufficient working capital, effective cash management and the correct financing structures in place. Finally, dealers should align their business development strategy so as to take full advantage of the growth areas in the market place.