The car industry is set for another bumper year of sales, but behind the gleaming showrooms lurk serious concerns , writes Michael McAleer
New car sales for 2006 are likely to finish at 180,000 cars, up four per cent on last year.
That's a healthy margin and next year promises to equal or top that, with the benefits of further SSIA spending pushing up sales, the Irish economy remaining strong and several new models being introduced to better suit buyer needs and latest trends. It should be a good Christmas for most in the industry.
Yet recent changes are causing unease at all levels of the industry. While buyers will have little sympathy for the car industry when faced with the high prices of new cars, many dealers are not in festive spirits.
Order books may seem full for the coming month, but they claim the current market is highly competitive and profit margins are particularly tight. Some dealers are recording margins in the region of one and two per cent and this at a time of buoyant sales. Several well-known dealerships across the State are recording losses.
Then there is the large-scale investment in premises required of franchise dealers under new EU rules. Known as Block Exemption, the new regulations were meant to open the industry to new competition from independent retailers but this has not come to pass.
Instead, dealers are being forced to bring their premises up to new standards set by the car manufacturers. Plush new showrooms, soft furnishings and extra parking may improve the "buying experience" but it does little to profit margins and many dealers reckon the investments serve to improve the image of manufacturers rather than dealers.
Millions of euro of investment is required in many cases and when judged against the poor profit margins on offer at present, many dealers are rethinking the viability of their businesses. Add in the fact that many dealerships are located in urban areas ripe for property development and the end result may well be a reduction in the number of car sales operations in Ireland.
There is also concern over the number of private imports coming into the market for resale by roadside private operators. Cyril McHugh of the industry lobby group SIMI argues that the Government, and in particular the Revenue Commissioners, are not doing enough to stop the "black economy" in car sales.
"The official figures suggest that two-thirds of all private imports are for private use and one-third are for commercial sale. Given the number of re-registered used cars on sale on roadsides across the State, we think the reality is very different from what the figures claim. Substantial numbers of 'private' sellers are involved in the car trade yet are paying no VAT, have none of the official overheads or industry standards faced by dealers and are not being pursued by Revenue Commissioners."
He says that anyone selling more than three cars a year is clearly in the car sales business and should therefore be forced to meet the standards and tax commitments that fully-fledged dealers must face.
In the wider industry, the days when buyers were faced with a choice of either saloons or hatchbacks have long since passed.
SUVs, hard-topped coupé convertibles, people carriers, minis, superminis and city cars are all on offer. Car firms are fighting to come up with new individual offerings that differentiate their products from the rest of the market. The most recent case is the arrival of crossover models that are part-SUVs, part people carriers and yet have coupé-styling traits.
Gone are the days when carmakers offered a small hatchback, a mid-size family car and a flagship model. While parts and platform sharing is all the rage, expanded model line-ups still mean extra costs for manufacturers. The average new car can cost €1 billion or more to develop even with shared parts from other models and the carmaker must then recoup that investment before it starts to turn a profit.
The traditional timeframe was 30 months for development and then seven years of sales before a model was replaced, with a facelift after three or four years. However, many industry analysts expect this to fall as buyers seek to change their cars more frequently and demand new looks and features when they go to market. Buyers are not happy to simply update the number plate. They want a car that looks and feels fresh.
Some manufacturers are working to cut the development time and through that, deliver new look models to market much quicker. Fiat, for example, is using advanced computer aided design (CAD) systems and development aids to cut the time to market to as little as 18 months.
While they are coy about the savings made, they are certain that it allows them to respond quicker to market changes, such as the recent growth in small to mid-range SUVs. This market segment is likely to be one of the most competitive next year, with a host of new models on stream.
The other concern for the industry is identifying future fuel sources. Rising oil prices in the US forced many to reconsider their engine line-up. Only Toyota, and to a lesser extent Ford, really caught the wave of popularity for petrol-electric hybrids. The success of Toyota models in particular has forced many other manufacturers to rethink their engine developments.
In the long-term, fuel cell vehicles powered by hydrogen seems to be the favoured alternative, even if ethanol - created from plant by-products - continues to grow in popularity.
For 2007, however, the petrol engine will remain king of the Irish market. We must wait to see the structure of the new emissions-based tax system for new cars and road tax announced by the Government in the Budget. Public consultation is underway but any decision is unlikely to occur before next year's general election.
In business terms, the car industry is in a state of flux, with the traditional US and European brands coming under renewed pressure from Asian competitors. The Japanese were the Asian pioneers in the car market and are now firmly established, with Toyota now in the top three car manufacturers in the world. That took them two or three decades to achieve. More recently the Koreans have arrived, taking just 10 years to establish a strong foothold in the markets.
However, the biggest threat to established European and US brands has yet to arrive. The Chinese are surprising everyone with the speed at which they are catching up in terms of quality and development. They still have some way to go, but we can expect to see some new Chinese brands introduced to Europe in the next two years. Expectations are that they will take even less time than the Koreans to establish themselves here.
The good news for buyers is that advances in technology and increased competition should mean more choice for consumers. So while the industry may grumble, car buyers should be increasingly content.