Big discounts over - for now

If you've been waiting for new-car prices to drop further still, you may have left your run too late. New-car sales have been so strong in the past two months that most of the excess stock has cleared and the days of drastic discounts may be over.

This is the consensus among industry executives interviewed by the Carsales Network over the past week.

A massive oversupply of new cars in the lead-up to the end of the financial year, combined with a slowdown in the economy, saw dealers offering unprecedented discounts to clear the build-up of vehicles. But most of the backlog has been sold and the balance has shifted from the consumer's favour.

Because dealers and carmakers order their inventory between three and six months in advance, there is going to be a brief drop in supply. Additionally, no-one expected the Australian new-car market to be performing as well as it is.

"June and July was so strong it cleared the cars that were supposed to last us until September," says Tony Farrell, general manager of the Alto Group's Jaguar, Land Rover and Volvo brands on Sydney's wealthy north shore.

"Because it takes us a few months for more stock to arrive there is going to be a period of relatively short supply in September. Most brands have wound back because no-one predicted how strong the market would be."

This means that the months of strong discounting may finally be coming to an end.

In the first half of 2009 the balance was very much in the car buyer's favour because dealers and car importers were desperate to shift stock. Now, both the dealers and car importers are running relatively lean inventories.

At the recent launch of the IS250C convertible, the boss of Lexus Australia John Roca said the last three months of this year would be a time for dealers across all brands to return to their normal profit levels.

"There won't be as much haggling because there aren't as many new cars to haggle over," he said. "The dealers have been doing it very tough, the industry has been doing it very tough and now we've returned to a more neutral supply and demand situation."

Roca said car importers also would not be as desperate to push stock onto dealers because they had almost no cars "sitting on grass" (waiting to be sold).

Farrell said new-car sales in August would likely be "static" across the industry as many dealers had run out of cars to sell. He also said it is unlikely there would ever be a repeat of the circumstances that led to brutal new-car discounting in the first six months of this year.

"All the conditions conspired to create a situation we've never seen before and will likely never see again," he said.

The industry still expects a strong finish to the year, however, as business buyers take advantage of the Federal Government's 50 per cent depreciation allowance, which expires at the end of December. Under the arrangement, ABN holders can claim 50 per cent of a new vehicle's purchase price as a tax deduction in this financial year, instead of spreading the deduction over several years.

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