A squeeze on margins in all areas of the motor vehicle industry is making an already competitive sector even more so – from new cars, finance, insurance and leasing, down to second hand vehicles. The only winner is the consumer, reports KPMG.
KPMG’s Non-Bank Financial Institutions Performance Survey (FIPS) reports that motor vehicle dealers and their lenders are under increasing pressure.
John Kensington, KPMG’s Head of Financial Services, says survey participants reported vehicle dealers’ overall margins were being eroded by high sales targets set by the manufacturers and the need to cut margins to get the last few sales away.
“Our participants commented that vehicle manufacturers are placing very high expectations on brand retailers – and setting high targets before any rebate can be achieved.”
John Kensington says this has a number of flow-on effects. It has forced dealers to pre-register vehicles and build inventory, which is funded by bank and non-bank vehicle lenders; but sales margins are depressed when the “target” vehicles must be sold.
“Dealers are starting to see low margins become even lower. This increased need to sell vehicles to get rebates is driving down the price of second-hand vehicles,” he says. It is also making dealerships more reliant on finance and insurance income, as well as service and parts revenue.
“Anecdotally, we’ve also heard that although the number of vehicles registered has increased, a large proportion of this increase has been to the rental market, where margins are traditionally low.”
Motor vehicle lenders are also facing increased competition, with a number of new players entering the market and seeking to gain market share with attractive deals. Two new entrants talked about frequently were Nissan Financial Services and Branded Financial Services.
On the positive side, KPMG’s Survey reports participants in the motor vehicle financing sector continue to show good improvements in impairment asset expenses. Three of the six motor vehicle financing companies managed to reduce their impairment charges, with a combined $2.95m reduction across the three companies.
A new vehicle finance company has been included in KPMG’s 2015 FIPS Survey for the first time. Nissan Financial Services Pty Ltd was established in April 2013. It has already gained 1.19% share of New Zealand’s non-banking lending market, and is still building its loan book with lending related to Nissan dealership sales and other needs.
The Survey also reports that Toyota Finance experienced a decline in profits of 55.47% in 2015 but much of this was due to a $13.38m unfavourable fair value movement arising due to changes in interest rates.
In other industry news, Motor Trade Finance (MTF) continues to prove attractive to parties wanting to acquire a stake in or buy the company, with approaches from Heartland and Turners Finance in the past year.