‘Crisis Point’ for Aussie car dealers as Chinese brands keep coming

Australia’s new-car dealers have had a gutful. The Australian Automotive Dealer Association (AADA) says the retail industry has hit a ‘crisis point’ and wants the Federal Government to hit pause on any more car brands entering the country – most of which are Chinese.

The call lands just weeks after the AADA returned from a fact-finding mission to Beijing, where it pressed the flesh with Chinese government officials, industry bodies and car makers eyeing off Australia.

According to the AADA, the September quarter delivered the industry’s first negative quarterly profitability result since the global financial crisis – and it says the outlook is grim.

“This is a clear warning that the commercial settings underpinning our industry are becoming unsustainable,” said AADA CEO James Voortman.

“The sheer number of brands arriving in Australia at a rapid pace is having profound consequences for Australian consumers and businesses alike,” he said.

“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.”

The dealer body reckons the risks don’t stop at the showroom door, warning that unchecked brand growth is driving rapid depreciation, slower parts supply, longer repair times and orphaned vehicles when brands pack up and leave.

“There are simply too many manufacturers operating in this market and we need a pause on further car brands entering this market,” continued Voortman.

“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.”

The USA has set up 100%-plus tariffs on Chinese-built vehicles which effectively rules them out for that market. The European Union has implemented a number of regulatory safeguards to protect their domestic automotive industries including forcing Chinese brands to build factories inside Europe to bypass import caps.

So in Australia, the AADA is requesting a pause rather than a ban, but it’d still be a big call for one of the most open car markets on the planet.

The numbers show why dealers are twitchy. China-built vehicles found 37,503 buyers in October, up 94% on the same month last year, according to VFACTS. That’s more than a third of the 103,325-unit market and well clear of Japan (24,089).

Year to date, China-sourced sales sit at 318,862 – up 75.1%.

“Australians benefit from choice and competition but manufacturers’ growth ambitions must reflect what this market can support,” Voortman said.

“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 said cash-strapped households are more cautious buyers these days, while dealers cop hefty operating and stock-financing costs.

“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.”

The AADA also says the new mergers and acquisitions regime is adding cost and red tape just when dealers need wiggle room to sell, restructure or consolidate.

“Competition safeguards matter, but their application must recognise the realities of an industry undergoing rapid structural change,” Voortman said.

“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.”

The timing is telling. An AADA delegation travelled to China earlier this month, toured GWM’s factory and R&D operations, met Seres (the Huawei-linked parent of Aito) to discuss its Australian plans, sat down with the China Association of Automobile Manufacturers and heard from Chinese makers at the World Intelligent Connected Vehicles Conference, where Voortman presented.

Officially, the message was about dealer councils and sustainable partnerships. But you don’t need a crystal ball to suspect the AADA came home having heard from plenty more Chinese brands with Australia in their sights – ones that haven’t gone public yet.

Days later, it was calling for the gate to be shut. It has since briefed the Chinese Ambassador to Australia too. 

Whether Canberra listens is another matter.

For now, the AADA is taking a 10-point plan to government, which you can read about at the AADA website but the most dramatic proposal includes pausing the entry of new car brands into Australia and potentially capping licences, which would mean dozens of new car brands already signalling their intent would be knocked back.

The AADA also wants to freeze supplier price increases for at least 12 months while cutting fees or offering rebates while forcing the manufacturers, the car brands, to provide financial relief for excess inventory, including interest support, stock transfers and buybacks.

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