ANALYSIS:WHILE THE loss of nearly 200 jobs at one of the State's biggest motor groups was always going to capture national attention, it reflects a steady stream of job losses in the industry over recent months. These have not attracted the same attention as the closure of large manufacturing plants, but the impact is just as hard on the economy, writes MICHAEL McALEER,Motoring Editor
An icon of the Celtic Tiger years, new cars sales surged along with house prices. Dealers profited from increasingly image- conscious Irish buyers. In 2007 new car sales reached the heady heights of 186,540.
Then the bubble burst. Sales this year are down 64 per cent on the same period last year, with predictions that it will finish the year at 50,000. That will be the industry’s worst annual sales figure since 1988 and far in excess of even the most doom-laden predictions of 18 months ago.
The problem is that the industry’s infrastructure and investments are based on sales figures far in excess of those of 1988. And with the most optimistic predictions for new cars sales in 2010 suggesting it might reach 65,000, the outlook doesn’t look likely to improve in the near future. Both dealers and distributors have been caught with too much stock and difficulty in financing it. Footfalls in dealerships are reportedly down to 1990 levels.
In many ways dealers have found themselves caught in the perfect storm. First came the demand for large-scale investment in new premises that coincided with the building boom.
New EU competition rules in 2003 allowed car firms to demand new facilities and standards from dealers. These often reached farcical levels, with rules on the size and colour of showroom floor tiles. The end result was the multi-million euro glass palaces that dot the country.
Next came the introduction of an emissions-based tax regime for new cars from July last year. While the move was well flagged by the Government in preceding budgets, the finer details caught some car firms and dealers out. The changes had a significant impact in new and used car prices, devaluing their stock.
Both of these challenges could have been overcome were it not for the severity of the recession. Had the good times rolled on, these costs would have been covered. However, recession changed all that.
Sales have collapsed, stock remains on the forecourt – both new and used – losing value every day. Exchange rate changes have meant business has been lost to dealers in the UK and North. Meanwhile banks are less than eager to lend yet more cash for working capital or customer financing.
Many dealers who had some cash reserves from the good times went on to invest it in the supposedly rock-solid property sector. The losses on these investments have only increased pressure on the core businesses.
So what now for the industry? As with most struggling Irish businesses, the primary issue is cashflow. Many are already operating short-time working and hoping that service and repair work through the workshops will generate income. The reality of our registration system is that the majority of new car sales occur in the first four months of the year, so dealers cannot expect much activity for the rest of this year.
While anecdotal evidence suggests used car sales are starting to pick up again, most industry predictions suggest there will be little recovery in new car sales until 2011 at the earliest. It’s really a question of how many dealers can continue to finance their current operations and present-day trading levels. The Government indicated its concerns for the motor industry last month when it gave dealers additional time to pay VAT bills.
That concern must only increase with the decision to put such an established business as Tom Hogan Motors into liquidation.