A number of key drivers have seen the car sales industry skyrocket since COVID reached Australian shores. Record profits and a high volume of car sales have combined with supply issues to create the perfect storm for the sector.
We take a look at the current market conditions and why this sector is turning investor’s heads.
While profits in a range of categories, such as groceries, home improvements, fast food and home office essentials are obvious outcomes of COVID impacts, another industry is booming – car sales.
The sector has experienced consecutive months of growth. Half-yearly results revealed cumulative January to June sales are up 28.3% over the first half of 2021 to 567,468 sales.
Used car sales are also showing extraordinary growth. Australians are paying 40% more for used cars now than they were in February 2020.
David Buckley, Partner at advisory firm Fordham Group, Australia’s leading car dealership accountant and consultant, said a number of factors are contributing to this trend.
“During the past 18 months or so, dealership profits have doubled or in some cases tripled,’ said Mr Buckley. “It’s a classic supply versus demand scenario. COVID-related logistics and supply chain issues and a severe lack of semiconductors have brought about supply shortages from all manufacturers in Australia. Demand for cars has soared because of a severe 60% drop in public transport use as commuters seek to avoid COVID exposure and a growing move to domestic road travel for holidays, plus a significant influx of ex-pats returning home.’
Data reveals that the high demand for cars has translated to increased appeal for automotive investments.
Burgess Rawson National Director Billy Holderhead said more and more savvy investors have turned to the automotive sector over the past 18 months.
“The auto sector has always enjoyed strong interest, but automotive assets have quickly become investor favourite thanks to their ability to trade and perform strongly through the pandemic. The core fundamentals of the auto sector remain steadfast. Long term leases, large landholdings with high profile exposure, secure income and favourable planning controls ensure significant future development upside,’ Mr Holderhead said.
The Chadstone Ford and Hyundai site, for example, is a once-in-a-generation landholding. The site is the largest Commercial 1 zoned site in the precinct with 15 years of net income with which to plan your next move.
In the new COVID marketplace investors seek high performing tenants, who investors are confident will continue to pay rent.
“We have seen many business sales and acquisitions during the COVID period,’ said Mr Buckley. “Large groups and listed corporations are actively advertising and pursuing dealership businesses and some businesses that were worth $5 million two years ago are worth $10 million today.’
Mr Buckley added that favourable trading conditions for dealership businesses do not appear to be abating.
Burgess Rawson National Director Jamie Perlinger said confidence in the car sales industry is translating directly to the commercial property sector.
“Record profitability and consolidation across the sector has led to a huge increase in the buyer pool for car dealership freehold investments as they tick all the boxes. Investors are seeking investments underpinned by quality tenants with bright futures. The ability to thrive in COVID is fast becoming a factor which sets this sector apart.’