Buyers win from brand boom while dealers carry the cost, says AADA

The Australian Automotive Dealer Association (AADA) says Australian car buyers are benefiting from the surge in brands and competition, but dealers are being caught in the middle and absorbing the cost.

AADA chief executive James Voortman says the September quarter delivered the industry’s first negative quarterly profitability result since the global financial crisis.

“Australians benefit from choice and competition, but manufacturers’ growth ambitions must reflect what this market can support. Pushing excessive stock onto dealers is fuelling a race to the bottom. Aggressive discounting erodes margins and devalues vehicles while dealers carry the financing costs and risk of unsold vehicles,” Voortman says.

The number of brands in Australia has grown from 39 in 2021 to 67 this year, and AADA says the figure is still rising.

“Dealers are facing intense competition, relentless pressure to take more stock and rising business costs. Too often, they are left to absorb the financial consequences of decisions made elsewhere in the supply chain,” Voortman says.

“Strong headline vehicle sales can conceal serious financial distress at the businesses making those sales. Dealers cannot keep absorbing higher costs, lower margins and greater stock risk indefinitely.”

Pause on new brands

AADA is calling for a pause on new brands entering the market, saying the number arriving is unsustainable for the businesses that sell and service them.

“There are simply too many manufacturers operating in this market and we need a pause on further car brands entering this market. At a time when other countries are trying to slow the rate of change and number of brands, Australia is allowing unfettered access to this market,” Voortman says.

AADA says the growth in brands also carries risks for buyers over time, including rapid depreciation, slower parts supply and longer repair times, and vehicles left orphaned when brands leave the market.

Voortman says pressure on household budgets has made customers more cautious, while dealerships face substantial operating and inventory financing costs.

Mergers regime

The association says regulatory settings, including the new mergers and acquisitions regime, are adding cost, complexity and uncertainty at a time when dealers need flexibility to sell, restructure or consolidate.

“Competition safeguards matter, but their application must recognise the realities of an industry undergoing rapid structural change. Dealers invest in local jobs, apprenticeships, technical training and the servicing and warranty support motorists rely on. Governments, manufacturers and suppliers all have a stake in keeping that network viable,” Voortman says.

Ten-point plan

AADA is asking governments, manufacturers and suppliers to act on ten measures:

1. A pause on new car brands entering Australia, with consideration of a capped licensing regime.
2. Unfair trading practice protections for franchisees, modelled on New South Wales laws, with new entrants paused until they are in place.
3. Faster reform of Australian Consumer Law liability for breaches, also with new entrants paused until it is done.
4. An exemption from merger notification for small and family-owned dealership transactions, with a low-cost, fast approval pathway.
5. A freeze on price increases for at least 12 months, plus fee reductions or rebates.
6. Dealer councils with manufacturers focused on the viability of both.
7. Realistic sales targets and inventory levels, with dealers able to decline excess stock without penalty.
8. Relief for excess inventory, including interest support, aged-stock assistance, and stock transfers or buybacks.
9. Prompt compensation when price cuts reduce the value of dealer stock, and full funding of manufacturer-directed discounts.
10. Deferral of non-essential capital demands such as showroom upgrades, and more flexibility on multi-franchising and brand space.

An AADA delegation travelled to Beijing last month to put Australian dealers’ views to Chinese government representatives and manufacturers.