Introduction
Success of any business depends on how well it has analysed its
external environment (micro and macro) and its own business. This understanding
is crucial for businesses to survive, sustain and reap advantages from
opportunities and to combat threats from external forces. An industry analysis
is of paramount importance for any business to analyse various trends, degree
of competition market share. Similarly, business can understand its own
strengths and weaknesses by addressing external threats and opportunities from
external market by through SWOT analysis.
In this backdrop, purpose of this article is to understand both
macro and micro environmental characteristics influencing on car dealership
market in Australia and then to develop a SWOT analysis for a top major players
in the industry and to make recommendations.
Figure 01.2 Environmental Analysis
Australian Car Dealership Industry
Though car brands were able to have a strong position in global
market they are now surpassed by other trending industries, such as apparel and
luxury items (Snyder, 2006) . However, global car
sales are growing at a rate of 4.8% and main reason for the growth is rapid
economic development in China (Scutt, 2017) . Chinese cars are
currently well popular among their own country, where in 2016 they were able to
manufacture and deliver over 28Mn auto mobiles (China Today, 2017) .
Similar to global growth trends, Australia too
experienced a turmoil in the industry. Despite volatile growth in car dealership industry[1]
for the last decade, the industry generated over $ 66 Billion revenue in 2017 (AADA, 2017) .
Figure
01.2 Car Dealership Industry Revenue Growth
In comparison to other developed markets,
Australian new car dealers face a fierce competition, where they offer 67
branded cars under franchising agreements, compared to 49 brands in Canada, 53
in the UK and 51 in the USA (AADA, 2017) . Among these brands
Toyota (18.2%) has the highest Australian market share (Selwyn, 2018) .
Market composition
Car dealership market in Australia is at its
maturity stage of the life cycle with an annual growth rate of 0.05%. In terms
of new car retailing, there are approximately 2,600 vehicle outlets operated by
1,500 car dealers in Australia (AADA, 2017) . Market comprised of
public listed companies such as AHG Ltd, AP Eagers Ltd and Autosports Group Ltd
and other small and medium enterprises (SME)s. It is noteworthy that this
market is not dominated by few companies nor it has a monopoly. However, in
2015 onwards the small car dealerships experienced a losses and have been
subject to acquisition by large companies.
Figure
01.3 Market Share in Terms of Brands
Competitors
Car dealership market has number of other
competitive industries such as used car dealerships, customer direct imports
and alternative public transport. The vehicle importation has been decreased
over the past decade steadily due to the strict government regulations. Total
used car imports were 12,000 in 2007 has been reduced to nearly a half by the
end of 2017 (RAWS Association,
2017) .
Figure 01.4 Market
Share in Terms of Companies
Despite the increase in number
of cars sold by dealers profit margins have shrunk due to low priced cars are
being in demand. The industry is having only 2% of net profit on revenue
compared to 5-7% of net profit margin in retail industries (Deloitte, 2016) . Thus for the
industry to boom there should be incentives for car dealers either by enhancing
the profit margin or by increasing the volume. Currently it is estimated that
growth of the car dealership market to be 0.05% (Thomson, 2018) . Current population
growth in country is 1.4% and the increase in migration population growth by 3%
(Australian Bureau of
Statistics, 2017)
could contribute immensely by widening customer base.
Suppliers
In terms of supply side of value chain, major
supply industries are vehicle manufacturing, wholesaling, electrical service
and parts and maintenance. Changes of these industry conditions could have a
direct impact on dealership market. Cessation of domestic car manufacturing of
by 2017 (Motor Trade Association of Australia, 2018) caused a
considerable impact on dealership market which brought new opportunities as
well as created threats.
Due to intense price competition among local car
manufacturers and imported cars owing to high wage rate, technological costs,
domestic production ceased in 2017. Thus, new car brands such as Toyota and GM
Holden are now solely imported. This has given car dealers new opportunity to
seek for low cost cars to capture wider margins which was not presented when cars
were locally manufactured.
Demand
Demand side of value chain is the customers. Industry
caters to diverse auto mobile requirements, ranging from; taxi and limousine
transport; passenger car rental and hiring and end retail customers. There are
over 400 models to choose from 67 branded cars, which gives customers wide
range of options. Thus competitiveness within the industry is undoubtably intense.
Due
to environmental concerns and increase in petroleum prices in last decade
customers are now moving towards more eco- friendly electric and hybrid
vehicles. Thus, small cars such as Mazda3, Hyundai i30 and Toyota Corolla have
reported a growth in sales (Thomson, 2018) . Despite
considerable reduction in fuel prices in recent years, customers still prefer
to switch to smaller-cheaper and fuel-efficient cars.
Contrariwise,
boom in SMEs has increased demand for utility and commercial vehicles (Thomson, 2018) , which are
comparatively more expensive than smaller-cheaper and fuel efficient cars. This
is supported by Toyota HiLux, being a commercially used vehicle, becoming the
best seller in year 2016-17.These utility vehicles can attract more profit
margins to dealerships as they are priced well above passenger vehicles.
02. Market
analysis
Demographic factors
The industry is currently at a
saturated point where there are nearly 685 cars per every 1,000 people in
Australia (Thomson, 2018) . Thus, unless the
population growth is increased demand for cars will be stagnant without a growth.
According to Figure03.2 most densely populated states, such as New
South Wales, Victoria and Queensland, are home to more than 77% of the
population. Conversely, little over 78% of the car dealers operated in these
regions.
While population and car
dealership distribution appeared to be rational, new opportunities could be
seen in states such as in Northern Territory and Western Australia, where there
is a considerable increase in population compared to the previous year. This
could be further supported by the new migration policies to direct the
immigrants to the low populated areas. Though the overall population growth in
Australia is at 1.6% the immigration growth is at 3%.
Figure
02.3 Population
and Car Dealership Distribution
Legal
Local dealers are facing a
challenge due to new amendments made to Motor Vehicle Standards Act 1989, which
enabled customers to personally import cars from 2018 onwards (SBS News,
2016; AADA, 2017) .
This has increased choice for customers while creating a threat to local car dealers.
With these changes in legislation, it is estimated that nearly 30,000 vehicles
be imported to Australia every year (RAWS Association, 2017) .
Further, Australian
Competition and Consumer Commission (ACCC) has restricted insurance
companies to pay 20% commission payment to car dealerships when selling
insurance policies to their customers (ACCC, 2017) . According to BDO
forecast this legislative influence could reduce the annual dealership income
by nearly $1,000 million.
Taxation
More than 20% of the price of car is comprised of
taxes and charges (AADA, 2017) . This includes, 10%
GST and 33% of the luxury car tax charged above luxury car threshold[1].
Thus, due to stoppage of car manufacturing in Australia all are imported which
are subject to additional importation taxes. As a result profit margins have
decreased.
Conversely, tax exemption of cars importing from
South Korea (since 2014) and Japan (since (2015) helped reduced the tension on
prices (Thomson, 2018) . Despite Australian
dollar being depreciating against these currencies, removal of the taxes caused
prices to be reduced in the market attracting more customers.
Environmental
The environmental concerns and go green concept is not a mere fad
among the producers. It has been firmly grounded in the today’s business models
due to reasons such as government, pressure groups influence, change in
consumer lifestyle and awareness, overwhelming evidence of human impact on environmental
degradation and also partly due to the companies genuine concerns on the
environment (Leonidou & Leonidou, 2011) . In contrast, some
businesses perceived environmental issue as an opportunity to exploit by
changing their strategies and to place their product top of competition (Curtin, 2007) . Due to these
reasons environment has a great impact on the industry at large and on
individual businesses.
Similarly industry too has an influence on environment. It is estimated that approximately 19% of carbon-dioxide
emission can be linked to vehicles on road (PricewaterhouseCoopers,
2007) .
With constant increase in the global temperature and awake of awareness, the
customers are now moving towards alternative transportation methods such as
public transport and the bicycles.
Economy
Real household income of Australian residence has
increased in the past decade by 19% [2]
(simple growth rate). When household income increases there is more demand is
created for the non-essential items like cars (Thomson, 2018) .
Since
the dealership market solely rely on the imported cars the exchange rate plays
a vital role. The weak Australian dollar has caused profits margins to shrink
and it was reported that most small scale car dealers in 2015 reported a loss.
However, major players like Automotive Holdings Group and AP Eagers maintain
steady growth.
03. Audit of Major Players in
the Car Industry
As discussed in the previous section Toyota, Mazda, Hyundai,
Holden and Ford are the top five brands in Australia in terms of the market
share. In this section two major players will be analysed in terms of their
marketing mix.
Toyota
Toyota[3] is
a Japanese car manufacturer founded in 1937. Today Toyota has fifty-one production
and nine R&D bases across the globe, including Australia. Unlike other
brands, Toyota does not recognize its country of origin, rather it states “Made
by Toyota”, which emphasises philosophy: every vehicle is produced with high
quality in “Toyota Way” (Toyota-Global, 2018) . The following
sections describe marketing mix of Toyota. Toyota-Australia is an unlisted
public company which is at the 38th position within the 2,000
companies in Australia (IBISWorld, 2017b) .
Product
Toyota-Global
categorised 42 models under 9 classes (Appendix1) compared Toyota-Australia
categorization of 21 models under 4 classes (Appendix2). The product mix in
Australia is comprised of vehicles that suitable for the lifestyle and the
legislative framework. Since the cessation of the production of manufacturing
in Australia in 2017, all the vehicles are imported for the local market.
The
demand for large vehicles have been diminished which could be seen by gradual
decline in sale of Aurion[4] (Thomson,
2018)
and discontinuation of the production. Similarly, the importance placed on
medium cars declined (Camry) due to shift in consumer preference for small cars.
As a result demand for Corolla has increased. In particular large passenger vehicles
(Tarago) demand has decreased owing to high fuel consumption. Similarly grow in
SME businesses has created a great demand for utility (HiLux) and commercial
(HiAce) vehicles.
Thus
in terms of the product mix a greater emphasis has been placed on utility, small-fuel
efficient and commercial vehicles.
Price
Price is the only element in the marketing mix that does not
entail an actual cost to the business (Rao & Steckel, 1995) . In 2017
Toyota-Australia generated $8,827,889,000 revenue. This
is from the full range of low priced to premium models. The pricing model is
designed based on the model and customer segmentation.
Due to high competition among dealers and higher range of customer
choices, the pricing strategy has been the economy pricing for the
small-fuel-efficient vehicles and for luxury models, premium pricing strategy
has been applied. However, the pricing strategy has been revised for Toyota86
sports car model by lowering its price in order to popularise the product in
Australia (Thomson, 2018) .
Japan-Australia free-trade-agreement has removed the
import tax on vehicles. Toyota being a Japanese company were able to receive
the benefit of the government policy and lower their prices to gain the
competitive edge (IBISWorld, 2018) . As a result, lowering
the price of sports car category (Toyota86) has
attracted more customers.
Promotion
Toyota has branded itself as “making clean-cars” (Toyota-Global, 2018) . The advertising
strategies have been designed to emphasised qualities of different models. For
instance slogans such as “Hilux-tougher than you think” Yaris-treat it with
respect, “Prius-lower
emissions than a goat” encapsulates features and value of models. Toyota’s
commercial sponsorship has been driving force of their brand image. Among their
sponsorship policies they embrace innovative
environmental reliability safety high and quality (Toyota-Global, 2018) .
Place
Distribution channel is greatly dispersed as Toyota uses 313
dealerships to reach the customers dispersed across the country.
When
the dealership distribution is compared with the population it can be seen that
both has the same degree of dispersal.
Figure 03. 4 Distribution of Toyota Dealerships
Vs Population
Mazda
Mazda-Australia, which has its roots in Japan, is
a foreign owned private company which is at the 119th position
within the 2,000 companies in Australia (IBISWorld, 2017a) . It generated a
revenue of $3Mn including the sale of vehicles and other revenue.
Product
Mazda-Global categorised 11 models under 5
classes (Appendix3) and Mazda CX8, a large SUV model is about to be introduced
to their product range. Unlike Toyota, Mazda is well known for its product for
being made for passion and people with passion. The product designs are much
towards sports car models than for family-type wagon.
As a result of consumers shifting towards low
priced-small cars, demand for Mazda3 has been increased creating more emphasis
on their product range. Mazda is well known for its SUVs (CX5 and CX9) and
there has been a recent increase in demand among upper-middleclass buyers.
Price
The prising is very competitive as there are number of models are
in the market under numerous brads. Mazda follows different pricing strategies
based on the target market, for instance CX9 is a premium priced vehicle
targeted for upper-middleclass buyers
whereas Mazda3 is following competitive pricing strategy with lower prices to
increase the profits by increasing the volumes.
Promotion
Zoom-Zoom slogan has been the heart of the promotional campion of
Mazda since 2010. This represents Mazda’s fuel efficient SkyActiv engine. Among other promotional strategies Mazda aggressively
take part in commercial sponsorships. It has been the sponsor for number of
sporting events and gained popularity.
Recently, Mazda-Australia has a range of drive away offers for the
private buyers. Further Mazda has introduced an end-of-year tax time value for
a limited time period as a method of promotional strategies.
Place
Mazda manufacturing in different plants across the country and
imported to Australia. Having affiliations with dealerships provided Mazda with
competitive edge by being close to the target customers. Unlike other brands,
Mazda targets the urban youth in upper and middle-class-upper
04. Recommendation
Change in the product mix
In the review of information related to
Toyota-Australia it was noted that popularity for small-fuel efficient cars is
now in demand due to shift in customer preference. Further it was noted that
Australia is not importing all the product ranges available to the global
market. Out of a
total of 42 models only 21 models are available in Australia. Thus, it is recommended that Toyota-Australia
expanded its product mix by importing brands such as Mirai, Prius Plug-in Hybrid and electronic car
model iQ EV, which is an ultra-compact size car.
Conversely, it was noted that the
demand for the commercial and utility vehicles have been increased due to the
growth in the SME businesses. Thus, enhancing the product mix in Australia by
making the models such as Dyna, Tacoma and Tundra could help capture a growing
market.
Change in regulations
As discussed before from 2018 onwards
individuals are permitted to import vehicles to Australia without the necessity
to go through a dealer. In this regard, also it is recommended to increase the
models available for customers.
Segmentation
According to Stilinovic
(2016) and Guthrie (2017), New South Wales has 9 suburbs out of the most
expensive 10 suburbs in Australia, which includes Point Piper, Darling Point, Cremorne Point, Bellevue Hill the only other
suburb is Toorak in Victoria. Thus, it is recommended to focus on the
high-end vehicles and introduce WAKU-DoKI,
new sports car to Australian market.
Under environment analysis it was noted
that utility and commercial vehicles are in demand due to the growth in SMEs.
It is mostly in urban areas SMEs are opened and operated. Therefore it is
advisable to focus on promoting these types of vehicles in the urban areas. Conversely,
young people resettle in low-rent suburbs. As per previous analysis it is
understood that this age group prefers low-cost-fuel-efficient vehicles. Thus,
another recommendation could be to increase the small cars range and promote
them in low rent suburbs.
High-end cars
The industry is now saturated with 0.6
cars per every person. Thus, demand will not be increased unless population is
increased. Therefore it is recommended that Toyota to focus on delivering
high-end cars for car collectors and for upper-class consumers. This could
compromise the low margins gained from small-passenger vehicles.
05. Conclusion
This report analysed the car dealership market
in Australia. For this purpose, PEST analysis is used for external macro
environment, Industry analysis for micro environment and SWOT analysis is
employed to analyse the selected dealer-Toyota-Australia. It was understood
that market is at its maturity stage and saturated with 0.6 cars per person and
0.05% growth rate. Market faces a fierce competition due to high-concentration
and shift in customer demand towards low cost vehicles with thin margins.
The industry experienced number of changes
in external market such, as cessation of vehicle manufacturing in Australia,
deteriorating Australian Dollar, change in government policies relating to
importation of vehicles and commission earned by dealerships. These changes at
it face is unfavourable. Conversely, tax free agreements with major importers, consumer
shift towards eco-friendly vehicles, boom in SME created new opportunities.
Toyota-Australia, being the market leader has
a product range to cater to its different market segments. For pricing, they
follow economic pricing for low-cost-fuel-efficient vehicles and premium pricing
for high-end vehicles. Among promotional mix personal selling, through
dealerships, mass advertisements, public relations and sales promotions can be
highlighted as major strategies. Dealership has been the primary means of
distributing the vehicles, which gives opportunity to provide differentiated
approach to the market segment.
Finally, recommendations were put forward after the
analysis. Firstly, it is advised to increase the product mix offered in Australia
to address threats faced by Toyota-Australia. Secondly, to focus on types of
promotional strategies based on the demographic characteristics of customers.
In this regards more emphasis should be placed for small cars in low-rent
suburbs, luxury cars in expensive suburbs and utility and commercial vehicles
in urban areas.
06.
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[1] The threshold for
2017-18 for the fuel efficient vehicles is $75,526 and for the other vehicles
is $66,331
[2] Mean weekly equalised disposable household income in 2016 is
$1,009 compared to 2005 is $843 (Australian Bureau of Statistics,
2017)
[3] Formally known as Toyoda
[4] Toyota Aurion is an Australian made car which was ceased its production
in 2017
[1] “Motor
Vehicle Dealers industry includes dealerships primarily engaged in selling new
or used motor vehicles to consumers, companies and government entities” (Thomson,
2018, p. 2) . The industry also includes the after sales
services to their customers. Thus, market composed of:
-new
car retaining,
-used
car retailing and
-after-sales
services.
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