Price Discounting: After the bumper sales in the last few years, Irish car dealers may be facing tougher times, like US counterparts. John Cradden looks at discounting as a way to maintain car sales
Like many of their European counterparts, Ireland's car dealers and distributors have being doing a decent trade in new cars over the last few years.
Car ownership rates have skyrocketed from some 70-80,000 new cars bought every year in the early 1980s, to 230,000 in 2000. Last year's figures were down to about 185,000, but it was still a bumper year by anyone's standards.
However, dealers and distributors in Ireland and across Europe are preparing to face the prospect of tougher times, thanks to growing financial pressure and changes introduced last week with the adjustment to the block exemption.
Sales of new cars across the EU are still registering healthy levels despite the frailty of Europe's economy in general. Overall, European carmakers' revenues rose 10 per cent last year, to a record $360 billion. However, such figures obscure the fact that manufacturers' profits are being royally squeezed by having to offer strong incentives in the form of price discounts and interest-free loans.
The situation is a palpable mirroring of what has been happening in the US, where the Big Three (Ford, GM and Daimler-Chrysler) have been offering profit-destroying discounts in order to prop up sales post-September 11th. There, attractive zero per cent finance deals have been bringing the buyers out in droves.
However, commentators have observed that the longer such unsustainable offers continue, the more likely there will be a big sales slump once the offers close.
Indeed, the offers have been bringing out buyers who would otherwise have waited another year or two before renewing their cars.
While such a sales slump has not yet shown up on balance sheets in the US, European carmakers are already worried, thanks to shocking financial results for 2001. GM/Opel in Germany ran up a $594 million operating loss for the year. A large rationalisation of Opel's Irish dealer network is underway, including the closure of well-known dealerships like Boland in Clondalkin and MCM in Dublin
At France's Renault, operating profit fell by more than two-thirds to $140 million, while Italy's Fiat Auto reported an operating loss of more than $400 million. Ford of Europe is barely profitable, even after a major restructuring. While it swung back into profit in its second quarter, a fresh round of cost cuts have been announced. The Japanese and Koreans are losing money, too.
European car sales in 2002 overall are expected to slip by as much as 5 per cent, mirroring a fall in consumer confidence. Yet despite the new car incentives bonanza on offer to many EU consumers, they do not appear to have reached Ireland's shores in any big way.
The traditionally busy first three months of the year did see a number of attractive offers in order to capitalise on demand for new 02 plates, such as extra equipment as standard, and zero per cent financing on smaller models, but a brief look at forecourt deals across the country shows that such offers are thin on the ground at the moment.
A couple of exceptions are Renault and Fiat. Renault Ireland is shortly to offer attractive deals on new Clios, while Fiat Ireland has just launched a special deal on a Punto that includes a zero per cent interest free finance for 50 per cent of the cost of the car, plus a number of benefits.
However, most distributors and dealers reject the suggestion that they have had to offer more incentives and special offers to keep sales at a healthy level. "Sales this year will figure at around 150,000 to 155,000 and we think that's sustainable," said Denis McSweeney, marketing director of Ford Ireland.