Home » Quicker new car sales help dealers fight back against private sellers

Quicker new car sales help dealers fight back against private sellers

On the call, McIntyre said car dealers had wrestled back some of the momentum in the Australian used car market, which has long trended towards private sales, particularly in recent years.

McIntyre said it wasn’t enough to materially impact his company’s earnings – CAR makes money advertising vehicles for both private sellers and dealers locally, and at a slightly higher margin for private sales – but it was a nice nugget of information for anyone looking for an idea to buy or sell.

Shares in Eagers Automotive, Australia’s biggest listed car dealer, shot up 3 per cent on little news of its own.

You could tell on the earnings call that McIntyre’s remarks about dealer versus private channels surprised analysts – there were a few questions trying to find out more. Their first thought is CAR’s margin, the second is what it means for others.

Explaining his comments afterwards, McIntyre says easing new car supply issues meant more new car buyers were trading in their used car rather than selling it themselves, which sent more stock into dealers’ car yards. His company CAR still gets the online advertisement, but it counts it as a dealer ad rather than a private sale.

That’s good news for dealers. McIntyre says a year or two ago, when it was not uncommon for a new car order to take six months to arrive in Australia, those new car buyers knew they had plenty of time to sell their old car and would list it on Carsales.com themselves and see what interest was out there.

Now, a car is available either straight away or much quicker than before, and more buyers are trading in on the spot or want a quick sale. That plays into dealers’ hands.

McIntyre calls it a small “mix change” for his business – his presentation talks about “good growth” in his dealer channel and “solid revenue growth” in private – but it clearly has implications for dealers, who for years have fought the gradual structural shift to private sales.

More cars in car yards is obviously good for dealers, who are juggling price/volume/cost to manage their own profitability.

It also bucks the long-term trend towards private sales, which has underpinned the Carsales.com story. A lot of Australians are comfortable selling a second-hand car, which isn’t the same in all markets offshore, and realise they can get more for a used car than the dealer’s wholesale price.

While there’s a bit of a change in that mix this year, McIntyre is still finding ways to grow all bits of his core Australian Carsales.com business.

Dealer revenue was up 12 per cent in six months to December 31, while private sales revenue grew 11 per cent, its media business revenue was up 22 per cent, and its data and research arm gained 9 per cent.

That growth on all cylinders is what you expect from a business whose shares are trading at 12-times forward revenue and 23-times forecast EBITDA.

Bigger is better

Given the prevalence of its Carsales.com brand in Australia, it is easy to forget that CAR has morphed into a global business in the past decade. That, and reinvestment in the core Australian business, has driven the significant revenue and earnings growth and share price gains.

Australia now accounts for only 42 per cent of the group’s revenue – down from 72 per cent four years ago. The United States, where it acquired full control of trucks and RVs platform Trader Interactive, now accounts for one-quarter of its sales and Latin America is 16 per cent.

CAR has done it by buying stakes in joint ventures, watching them operate under co-ownership for a few years, and then pouncing. Other Australian acquirers could learn from its approach; plenty of ASX200 companies have blown up shareholders’ money on offshore acquisitions over the years.

Those offshore acquisitions have helped CAR maintain its long-term revenue and earnings growth momentum, even while its Australian business has moved into a category-killer position. It has raised equity to establish a bigger shareholder base and, combined with the rising share price, has significantly lifted the company’s equity valuation to $12.6 billion.

CAR is now big enough to be in the MSCI Australia Index, where it was added in November, which puts it on the radar of more big global institutional investors. Just joining the MSCI Australia Index fuelled big buying late last year – nearly 10 per cent of its shares on issue changed hands on that November day when it was added to the index.

McIntyre says there are now more passive funds and more US-based investors on CAR’s register. McIntyre says that has “probably been helpful” to CAR’s share price, although it is clearly much more focused on operating results in its underlying divisions.