Tax break lifeline for Isuzu Ute Australia

Starting any business is a risky prospect at the best of times, but just months out from the local impact of the worst global recession in 80 years must surely be the worst of times.

Isuzu Ute Australia (IUA) commenced operating here at the very tail end of 2008 and faced extinction almost from day one. Contrary to the original expectations of Hitoshi Kono, IUA's managing director, the importer and distributor got off to a very slow start in this country.

Just 25 cars were sold during the first month of operation. Isuzu even had to buy another 25 in the same month to make the VFACTS sales figures seem less appalling.

It looked like a no-brainer for Isuzu to introduce the D-MAX to Australia and set up a distribution network to support it. The D-MAX was the same pick-up that Holden had been selling in respectable numbers as the Rodeo for years beforehand. There was no reason to think that the same vehicle, with the right sort of marketing -- aimed directly at farmers and tradies already familiar with the Holden-badged version of the product -- wouldn't make a killing.

But setting up the network and the infrastructure to support it required 10 months of preparation. That far away from launching the brand here, few could foresee how hard the GFC would bite.

According to Kono-san, the prospective business didn't even have a name in those early days. It was by no means certain that it would be named Isuzu Ute Australia and the company toyed with being branded 'Isuzu LCV', although Kono likes the Aussie tone of the 'Ute' name and the company will remain branded so, even if it markets the MU7 SUV successor here.

The name was just one issue to be ironed out before the company could open for business in Australia.

"We came here... at the beginning of 2008. It took me 10 months to reach the state of selling the car," Kono informed local media on the occasion of the company celebrating its 10,000th sale in Australia.

"I had to build the company, had to build the [dealer] network, had to build the logistics and establish the computer network -- everything.

"So [in] October 2008 we started selling D-MAX. Unfortunately, we chose the wrong time -- right after the [onset of the] Global Financial Crisis.

"At that time... we had ordered over 1000 cars from the factory... we ordered four months ahead.

"In the first month we sold 25 [throughout] the whole nation. So we bought 25 from ourselves, to make up the sum to 50. We reported to VFACTS that we sold 50, [but] actually we bought half of that.

"One or two months after we started selling D-MAX, honestly, we were not sure we could survive in Australia. The dealers at that time, most of them were panicking by the loss of floor plan..."

Understating the situation at the time as "kind of a crisis", Kono related how one big dealer in Sydney, owner of three outlets, was ready to hand back the franchise within a few months of opening -- things were that bad.

But there was little doubt in the MD's mind that the company and its product range would succeed in Australia. With the D-MAX selling strongly from the word go in most of the 90 markets where it's marketed, it was inconceivable to Kono and his management team that the Isuzu-badged vehicle wouldn't succeed in Australia -- explaining why the total lack of initial interest from the market came as such a complete shock.

The correspondent for the Carsales Network asked Kono-san whether there was a line in the sand for the new business to succeed -- either by revenue or sales volumes. The IUA exec replied that the neither the parent company nor the local management team had a "fallback position".

"The reason we didn't have any fallback position," he explained, "is because, in the past, when Isuzu entered any new market... we gained quite good a share in a relatively short period. So the only cases we've ever seen have been successful."

Despite that background, Isuzu Ute weren't complacent about their chances. The importer's management fully expected Australia would be a tough market -- one already populated by Toyota and Holden. Toyota's HiLux is the principal competitor to the D-MAX in Thailand and Holden's Colorado in Australia shares mechanicals and underpinnings with the Isuzu.

"We knew that Holden is such a strong brand here -- and we would be directly competing with them. So we [expected to] have more difficulty than in other nations -- but we never saw the project [failing]."

Back in 2008 the company started out with a network of 38 dealers, but in the two and a half years since that number has grown to 80. In fact, the 80th dealer was appointed just three to four days before Kono's presentation to the media.

When the business began operating in Australia, its buyer split was 20 per cent fleet, 80 per cent private. That ratio is now reversed. Fleets account for 80 per cent of all D-MAX sales and IUA is now on the lists of companies acceptable to tender for state government fleet business. The only two states that haven't opened the way for IUA to spruik for business are the local manufacturing states of Victoria and South Australia.

According to Kono, the company's change in fortune is due to the commitment to chase fleet business -- including government -- and also the federal government's tax incentives for small and big business during the GFC.

"In 2009... we had this surprisingly generous tax incentive from the government. That was really a huge relief for everybody."

After the rocky start in 2008, IUA's sales volumes improved markedly in 2009 -- faster than the company would have managed without the government's tax incentives underpinning consumer confidence, Kono believes, but the company proceeded slowly in 2009 nonetheless.

"During 2009, when we ordered vehicles, we were very conservative. Half of 2009 we were running extremely low stock levels. At a certain point we had only about 20 or 30 vehicles [in dealer stock] for the whole nation."

Yet the company's local sales of 3566 in 2009 were respectable, compared with sales of D-MAX in most of the 90 export markets in which the D-MAX is sold. When the European markets went into "meltdown", to use Kono's word, Australian sales of the D-MAX accounted for as much as "20 to 30 per cent" of the factory's production output.

"Even today, when the whole world is recovering, the factory people still remember that [during] the toughest time, we sold a lot of cars for them."

Sales in 2010 improved again, rising to 5114 units for the year. And the climb in sales for 2011 is up 40 per cent in the first quarter, with the D-MAX selling 612 units in March alone -- both results pointing to a very strong performance for this year, but that may be hampered by supply from the factory.

Like many Japanese companies operating in South-East Asia, the Isuzu factory in Thailand remains dependent on parts supplied from Japan. The problem doesn't rest with the Tier One parts suppliers alone, the deeper concern is that Tier Three or Four suppliers have been affected by the earthquake and tsunami that has wiped out much of the manufacturing infrastructure in northern Japan.

That has blown a hole in IUA's plans for the local launch of its new D-MAX. Even before the natural disasters hit northern Japan, IUA was going to have to fight with the factory for the appropriate level of supply for the local market, but the task will be all the tougher now.

Asked whether a local launch timed for the first half of next year was on the cards, Kono could merely say "I really don't know".

Picture: Darren Jacobson takes delivery of the 10,000th D-MAX sold in Australia from IUA's Richard Power

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