Ford and Holden Stumble, Toyota Triumphs

– “Australian car sales slump as buyers go for imports” reports today’s The Age newspaper.  We can almost hear the executives at Holden, Ford and Mitsubishi practicing their tales of woe as they go begging to Canberra. The report says, “Sales of Australian made cars collapsed from almost 250,000 in 2005 to just 201,623 last year – a drop of almost 20 per cent, according to preliminary figures released yesterday by the Federal Chamber of Automotive Industries.”

– Is it any wonder that Australian made cars are selling like, well, cold cakes when Ausrtralian car makers spend all their time and money developing petrol guzzlers such as the Falcon, Commodore, Statesman and Fairlane?  Meanwhile, the bland Toyota has focused on the small to mid-range cars, along with other Asian manufacturers such as Honda and Nissan.

– Turn the clock back ten years and it seemed as though two out of three cars on the road was a medium to large size Ford or Holden.  That was before tariffs were lifted and the Australian economy really started to move ahead.  With the new found affluence of the Australian population, they were no longer satisfied with a V6 or V8 Commodore.  Now they liked the look of bucket-shop cheap BMW 3 Series, or Mercedes C Class.

– The female car buyers were bored with being lumped with substandard small cars from the domestic manufacturers.  Wouldn’t it be much more fun to get a stylish Renault or Peugeot.

– An important shift also came from fleet managers that gave their sales reps and other employees more flexibility over their choice of vehicle.  It therefore allowed BMW, Mercedes, Volvo and Saab the opportunity to sell their vehicles into the previously unreachable market of fleet buyers.

– But the domestic manufacturers didn’t seem to take heed of the shift.  Instead of diverting development money away from the V6 and V8 cars, they chose to develop even more of them.  Thus the revival of the Monaro for a few years and the development of sedan/4WD crossover vehicles.  You even saw new bigger and better Utes.

– All the while, the Asian and European manufacturers plugged away at the small and mid size market, gradually convincing consumers that big isn’t necessarily best from a style perspective.  It was this initiative that saw them firmly on the front foot when crude oil prices started to rise.

– Those that had made the conversion from large to small were hardly likely to switch back as petrol crept up from 60 cents per litre to $1.40 litre.  Even today, unleaded petrol is around the $1.20 mark with little chance of it falling considerably below $1 despite the recent slump in crude oil prices.

– Those that hadn’t made the switch were more likely than ever before to do so given the range of vehicles now available to buyers.

– Emphasizing the new state of affairs is the fact that Holden Commodore sales have plunged to a “16 year low,” and “a small car took second place, with the formerly Australian-made, but now imported Toyota Corolla replacing the locally made Ford Falcon at number two.”

– Unless the local manufacturers can get their act together, and fast, they face the prospect of having their sales base annihilated.  Although governments may be tempted to throw the manufacturers a lifeline, it is up to the manufacturers to correctly assess their own market and get it right rather than relying on handouts.

Kris Sayce

Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Markets and Money e-newsletter in 2005.
He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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