The soft retailing environment that has already seen a number of companies downgrade forecasts, or even collapse, has caught up with Australia’s two big listed car dealership companies which have downgraded their profit forecasts in the past two days because of softness in new vehicle sales.
Retailers such as Marcs, David Lawrence, Herringbone and Rhodes & Beckett, Pumpkin Patch and earlier Dick Smith. Retailers such as The Reject Shop and OrotonGroup have slashed earnings guidance, while major chains such as Target (owned by Wesfarmers) and BigW (owned by Woolworths) will report more losses as sales continue falling.
Now cars are weakening and the slowdown is showing up in the two states hit hardest by the mining slowdown – Western Australia and Queensland. But there are also signs of weakening sales in NSW and Victoria.
The biggest – Automotive Holdings Group – warned on Thursday that softer trading conditions in April on the previously strong eastern seaboard, a weak Western Australian market, and tightening consumer credit conditions in the automotive financing sector had been behind a slowdown.
The Perth-based company owns 109 dealerships in NSW, Victoria, Queensland, Western Australia and New Zealand, and a refrigerated logistics division.
A day earlier its 22.8% shareholder, Brisbane-based AP Eagers warned of a likely decline of first half profit before tax of between 7% to 9% because of an unexpected decline in vehicle buying by consumers, business and government.
Eagers CEO, Martin Ward said vehicle sales in Queensland, where the company derives 45% of its profits, had fallen by nearly 6% in the first four months of calendar 2017.
Mr Ward said Queensland was the second worst performing state behind Western Australia. That’s understandable because it is a major mining state and the slump in the resources sector, plus the impact of bad weather, storms and floods, have carved a trench through demand for housing, retailers and now cars.
“The industry expectations for the first four months of the year were for an equal or better market than last year’s, so the whole industry has been caught by this unexpected decline," Mr Martin said.
Auto Holdings CEO John McConnell said yesterday the "tightening conditions in the automotive market have been an increasing challenge in the half".
He said in Western Australia, the new vehicle sales market was now down 10 per cent on a year-to-date basis in calendar 2017 and conditions were very tough in that market.
A weakening east coast automotive market combined with the tighter credit conditions to buyers using finance, meant the east coast dealerships weren’t able to offset the strife in WA.
“Tightening consumer credit conditions in the automotive financing market have contributed to lower margins across the industry," AHG warned in its statement to the ASX.
As a result shares in retailers and car parts group fell noticeably yesterday. AHG shares were down 10% at $3.03, while AP Eagers shares were up 1%. Shares in parts companies, Super Retail were off 6% and those in Bapcor, 4%. And shares in other mainstream retailers were also weak. Myer shares more than 4%, while shares in JB Hi Fi fell 1.6% and Harvey Norman shares were off 2.1%.
