FOR MOST people a car is a mandatory requirement of family life and in the heady days of the economic boom it also became a symbol of success, even excess. Of late the collapse in new car sales – down 64 per cent this year – is also symbolic of the state of the economy and consumer confidence. The impact on those working in the sector has been severe. In a trade that employs an estimated 50,000 people – 20,000 directly in dealerships – some 5,000 jobs have already been lost this year. The Society of the Irish Motor Industry (SIMI) reckons another 5,000 are at risk.
Aside from the collapse of consumer spending, dealers have had to cope with a host of other changes that have dramatically hit their bottom lines. Back in 2003, changes to EU competition rules permitted manufacturers to set new standards for dealers. For many that meant significant investments at a time when building costs were at their peak. More recently there has been the impact of changes to the tax regime on new cars that had a dramatic impact on the value of their stocks. In the midst of all this came a global recession. That heralded not only a collapse in consumer confidence but exchange rate changes that made imports from the North or Britain more attractive. Dealers are now competing directly with counterparts in Belfast and Birmingham.
The lifeblood of their businesses – like most small firms – is financing. Unfortunately many dealers followed the lead of others who profited from the Celtic Tiger by investing their extra reserves in the property market. What they now need is access to working capital from lending institutions, both for their own borrowings and those of their customers. Anecdotal evidence suggests that a high percentage of sales fall through at the last minute due to a failure to secure customer financing. With low footfalls in showrooms, the frustration of sales staff is obvious.
Expectations for the year ahead are not good. Given the enormous bias towards first quarter sales due to our registration system, new car sales for the rest of this year are likely to be minuscule. They are unlikely to top 50,000 overall this year, while estimates for next year are for sales to reach about 65,000. Those are figures similar to the late 1980s. Yet employment levels and investment in the industry are far greater now. While used car sales are showing some signs of recovery, they are unlikely to be able to carry the industry through in its current size. More pain looks inevitable.