Mitsubishi boss predicts discount frenzy

Mitsubishi's new president and CEO Rob McEniry has predicted a massive discount war among its local manufacturing rivals as Toyota, Ford and Holden attempt to reduce stocks of  Camry, Falcon and Commodore as local production continues to outstrip demand....

With the second successive month of slower sales, McEniry says the three manufacturers have been slow to adjust to reduced demand and sustained production has left them with thousands of vehicles to move.

He says once everyone started talking about the potential to reach 1 million new vehicle sales this year, some egos in the industry grew a bit big and tried to push too hard to reach that through increased marketing spending and incentivising.

"You would have to question whether the underlying true demand is at that level," McEniry says.

"With a three or four month lead times for vehicles in Australia we have a supply pipeline oversupplying for a million plus vehicles to satisfy an underlying market demand that is now significantly less than that.

"While it is relatively easy to close off import pipelines, the situation with the [locally-produced] large car market is much more difficult," McEniry stated.

"The large car segment has been in decline for the past two years or so, the movement from wagons to SUVs, the major cars getting towards the end of their product lifecycles and more recently fuel prices have all been well documented factors.

"The problem is however, while the market has been slipping some of the local manufacturers have been slow in reducing their production levels so not only are their inventories high, they are still increasing.

"If you take the reduction in demand, add to that the tardiness of adjusting production volumes to match that demand, you get left with excessive inventory. And these unprecedented levels of inventory have to be cleared as soon as possible with unprecedented levels of marketing and discounts."

McEniry says already retail sale prices of Falcon and Commodore are being advertised by dealers at up to $7000 off the recommended retail price while he claims fleet discounts can drop the price a further $2500.

"Discounting and incentivising is going rampant," he says.

"On the surface it would appear the consumers are the real winners but it is most likely there would be a sting in tail in terms of current and future trade in values."

Mitsubishi has certainly been no stranger to discounts with Magna having been heavily reduced in price for years as the company struggled through its dark days, but McEniry says that will be a thing of the past with the new 380.

"Our top market priority for 380 is to preserve the lifecycle values of that so we will not be reducing the recommended retail price of that car nor will we be dumping large quantities of cars into rental or other fleets just to achieve sales targets," he says.

"In the short term our sales will be impacted by this discounting as our competitors try to offload their excessive inventories.

"Our plan is very clearly to manage what we have control over and that is the supply side.

"We will align production with market demand rather than try to force the market to maintain production levels. You might say that that is a noble policy but what makes us think we can achieve it any more than the other major car companies is production flexibility."

McEniry says that Mitsubishi's flexibility lies in its Adelaide plant and the labour agreements it has so it can increase or reduce production without costly stoppages to meet demand.

It is indeed a noble idea to simply build to demand and one that none of the other manufacturers would baulk at. But changing the culture at a dealer level where discounts and incentives are part of the way they do business, regardless of the brand, might be a bit more of a challenge.