A ‘dire forecast’ for dealers could mean many could be forced to close their doors permanently.
UPDATE, 7/8/2020: Australian car dealers have welcomed the government’s recent changes to the eligibility criteria for its extended JobKeeper scheme, which will allow previously ineligible dealerships to apply for ongoing financial support.
Prior to the government announcement on August 7, more than 80 per cent of dealerships were exempted from re-applying for support because the instant asset write-off scheme had created a “unrepeatable” spike in revenue, meaning they could no longer prove two quarters of declining turnover.
But the new changes mean businesses now only have to prove they had declining turnover in the September quarter to be eligible for support in the December quarter.
“Under the previous criteria, the industry was facing a situation in which very few, if any, car Dealers would have been able to access JobKeeper beyond 27 September,” said James Voortman, CEO of the Australian Automotive Dealer Association.
“The changes announced today will provide car retailers and their employees in Victoria and throughout Australia with a great degree of comfort during a very difficult and uncertain time.
“These changes will help save jobs and on behalf of the industry, I would like to thank the Treasurer and the entire Government for listening and taking on board concerns articulated by the many businesses across the country.”
Victorian car dealers could lose up to 25 per cent of their workforce, with the majority of showrooms ineligible to claim the government’s extended JobKeeper payments.
The industry is concerned renewed restrictions are likely to slam the brakes even harder on already weak sales, and limit the chances of a market recovery.
A study by the Victorian Automobile Chamber of Commerce (VACC) – conducted shortly before Victoria’s latest round of stage-four restrictions was announced – found 82.7 per cent of Victorian dealers did not qualify for the latest JobKeeper wage assistance scheme.
This is because the government’s extended instant asset write-off scheme (which lengthened the timeframe for claiming car purchases and increased the maximum price of eligible vehicles) generated a temporary spike in income for dealers at the end of the financial year, superficially inflating their revenue for the June quarter.
According to Federal Treasury, from 28 September 2020 businesses will be required to reassess their eligibility to access the extended payment subsidy (which will now run until March 2021) by proving they suffered a continuing decline in turnover in the June and September quarters of 2020.
However, the majority of the 529 dealerships the VACC surveyed said the instant asset write-off had lead to an “unrepeatable” surge in revenue for the June quarter which had, in turn, ruled them out from accessing the JobKeeper extension.
“With the instant asset write-off in June, there was a big government incentive for people to go and buy vehicles,” said the VACC’s Head of Marketing, David Dowsey.
“It was a well-intentioned incentive from the government but, by implementing it, the government has effectively ruled dealers out from accessing further support. That month won’t happen again.”
James Voortman, the CEO of the Australian Automotive Dealers Association, said: “We are very concerned about the economic implications this situation will have for our members and we sincerely hope both the state and federal government will keep this is mind when considering access to support measures such as JobKeeper.”
Although June 2020 new car sales marked the 27th consecutive month of sales slowdown, the decline was smaller than expected thanks to a surge in ute and van sales.
However, the forecast for the next three months is “dire for dealers”, said Mr Dowsey, particularly after Victorian Premier Daniel Andrews announced another six weeks of travel restrictions, forcing the closure of showroom sales operations.
“There will eventually be large-scale job losses and there may be some smaller dealerships that may struggle to open again,” said Mr Dowsey.
The VACC estimates if dealers do not qualify for the extended government payments, this could result in a loss of employees from the Victorian new-car dealership sector of 24.95 percent from February to December 2020, with a further 1847 jobs predicted to be cut between September 28 to December 28, 2020.
This is in addition to the 1226 Victorian employees the VACC says were let go, made redundant, or not replaced from March to August this year.
“These are dealer-specific jobs only. This does not include the flow down to the Victorian aftermarket which relies on the health of dealers,” the VACC said in a statement.
Mr Dowsey said the VACC was urging the government to review their eligibility criteria and exempt the June result because of the artificial boost supplied by the tax incentive.
The VACC also issued a bulletin confirming the latest set of lockdown restrictions in Victoria would still allow dealerships to operate their service and repair arms, but would require all car sales to move to online or over-the-phone ordering with contactless delivery.
“Vehicle dealerships are still allowed to sell cars – if you ring them, you can still place the order and get it delivered – you just can’t go into the showroom,” Mr Dowsey explained.
The survey results come as Australia’s new car industry recorded its 28th month in a row of year-on-year decline in July – the longest continuous slump since the Global Financial Crisis a decade ago – and the weakest July result in 18 years.
New-car sales in Victoria were hit hardest in July, down 27.8 per cent versus the national average decline of 12.8 per cent.