Carsguide article - Small cars, Holden and Focus supply issues

[blackSRi]

http://carsguide.news.com.au/news/story_page/0,8269,16532959%255E21822,00.html

Big cars out, small cars in
Chris Riley
08sep05

Big cars are out and small cars are in, at least that's what the statistics say.

And that's bad news for the likes of Ford and Holden with sales of models such as Falcon and Commodore continuing to slide.
In the last 10 years, sales of large passenger cars have fallen from 30 per cent of the total passenger car market to just 19 per cent last year and last month had slipped back to 16.1 per cent.

At the same time, sales of small cars have grown from 13.4 per cent in 1996 to 19 per cent at the end of 2004. They are currently running at 21.1 per cent.

Although the slide cannot be attributed solely to the rise in the price of petrol, it is certainly a major contributing factor.

It comes as no surprise then that Holden has just announced plans to wind back production at its Adelaide production plant from 800 to 620 cars a day, cutting one of its three shifts and shedding 1400 jobs. Holden boss Denny Mooney said it was not an easy decision but one that had to be made.

He said the company is responding to global business conditions, increasing competition from imported brands and changes to local and export projections for coming years.

The decision follows close on the heels of plans to source the majority of small cars in future from GM Daewoo in South Korea. The cars previously marketed here as Daewoos will replace the current Barina and Astra Classic, both currently sourced from from Opel in Europe.

A cheaper, plentiful supply of cars means Holden can offer them at a more competitive price. That's bad news for Ford which does not have access to a similar source of cheap vehicles.

To make matters worse, Ford boss Tom Gorman said the company had underestimated demand for small cars.

Mr Gorman said Ford had also not anticipated that large car sales would shrink as "rapidly" as they had done this year.

Ironically, this confession comes at a time when Ford is about to launch a new "large" Falcon. The BF series Falcon, due in October, promises more power but better fuel economy.

Mr Gorman believes the car will hit exactly the right note with buyers.

"The customer doesn't want to give up anything," he said. "They want performance and they want better fuel economy. They want refinement and a great package."

At a time when buyers are queuing up to buy small cars, Ford admits it is having difficulty getting sufficient quantities of its contender Focus.

Ford brings in Focus from South Africa and while it could source extra stock from Europe, it is not interested in the short term.

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[blackSRi]

This is the why I have to wait until December for a manual Zetec - stupid Ford Australia - flogging them on tellie and they have very little stock in Oz (and the model sourced from South Africa doesn't have electronic stability control - ESC or side curtain airbags either - unlike the European-produced vehicles). "side curtain airbags were deemed too expensive for the South African market and Ford Australia turned down ESC for this Focus." - http://www.theaustralian.news.com.au/common/story_page/0,5744,16436815%255E13232,00.html

I think I should like to live in England if I want to drive smaller 4cyl cars - at least the small car market there is better - more competive, Opel/Vauxhall models and not many 4wds - petrols even more costly there.

[Namus]

oil rise hitting hard now...

[rjastra]

Trouble is that the price of oil will drop to more normal levels soon anfd petrol should drop to around $1/L

The reason for the slump in large car sales is fairly simple.... salary sacrificing and novated leases.

[btm]

The problem really is......

A lot of people can't understand how we came to have an oil shortage here in this country.

Well, there's a very simple answer.

Nobody bothered to check the oil. We just didn't know we were getting low.

The reason for that is purely geographical. Our oil is located in Bass Strait and off the coast of W.A.

Our dipsticks are located in Canberra..............:)

[oneightoo]

BA HAHAHAHAHAHAHAHAHAHAHAHAHAHAHHA

so true

[blackSRi]

Not bad, i'll pay that one.

I am not entirely convinced that the main reason for the slump in large car sales is (increasing) salary sacrificing and novated leases, it depends on what proportion of car sales goes that way.
I would say a bigger effect probably is the aging population - baby boomer mums and dads downsizing the new family car - along with the house too - after the kids have moved out.
That and petrol price - people are super-sensitive when on a budget to fuel and interest rates rises (although for some, they will still run the V8 on Premium and the 4WD - it's a luxury - always been that way too - just hits home true after fuel goes up).
I just feel very sorry for the country folks - it's hard enough living away from many services, then to be slugged also for petrol. Would make anybody want to move to the city.

[rjastra]

I am not entirely convinced that the main reason for the slump in large car sales is (increasing) salary sacrificing and novated leases, it depends on what proportion of car sales goes that way.


A significant portion of Commodore/Falcon sales are "fleet" (ie company cars).
As more people move (or are pushed) from company cars to salary sacrificing the fewer number of these cars are sold.

[blackSRi]

As more people move (or are pushed) from company cars to salary sacrificing the fewer number of these cars are sold.

But why do you say that? Most leasing companies that cover salary-sacrificed customers buy vehicles at fleet discount - a significant amount usually - and usually pass this on to their client, so the difference is nominal between a company buying at "fleet" and an individual going through a "fleet company" to salary-sacrifice.
I am with Easifleet, managed out of Sydney and they give me fleet discount rate on my salary-packaged car, and new car I am getting quotes on now.

In fact on salary-sacrifice, large cars are more affordable than small, as small cars don't get favourable pricing (to 'shift' them unlike small, imported cars)- i.e. a Falcon XT is discounted more than $6K, Holden Commodore $5K and my Astra SRi is only discounted $1K (mainly because the SRi is not a standard fleet model, it's imported - so no Aussie-made discount).
This is the same for all leasing firms, some specialise in operating lease types, others novated and associate, others purely company fleet or vehicle brand, but all get fleet discount.

No I think it's the domestic consumer changing this - I am looking for figures to see either way (I mean you would expect to see major news headlines like Fleet buying drops significantly etc etc).
Also, with Tax Bracket creep, in fact more people would be packaging as more people can gain better tax benefit to do so (not less), as their incomes increase, but the tax levels stay the same.

[blackSRi]

Have a look at the latest article on sales in Australia - http://carsguide.news.com.au/news/story_page/0,8269,16523997%255E21822,00.html

Falcon hops to the top
James Stanford
09sep05

Soaring fuel prices have not stopped Australians buying record numbers of new cars.

Sales last month were up 8.8 per cent on the previous record August total last year, despite fuel prices surging past $1.25 a litre.
In another surprise, the Falcon knocked the Commodore off the top for the first time since September 2003.

The Falcon had a shocker in July and was outsold by the Commodore and even the Toyota Corolla, but it bounced back to beat them both in August.

[oneightoo]

Well the BA is by far the best falcon they've produced..

[180HOA]

Trouble is that the price of oil will drop to more normal levels soon anfd petrol should drop to around $1/L

The reason for the slump in large car sales is fairly simple.... salary sacrificing and novated leases.

Where have you seen/heard that oil prices are to fall, and petrol to $1/litre? I don't get the impression that Holden has the same faith...

[blackSRi]

Where have you seen/heard that oil prices are to fall, and petrol to $1/litre? I don't get the impression that Holden has the same faith...

I agree, just type "oil price forecast" into Google - have a look at http://www.neatideas.com/oil.htm - prices are forecast to be going up up up.

Yeah, fuel prices staying high just means to Holden that it could make a difficult market/situation for them even harder.
It's a little like what happened with the large engine block models models in the 70's when the "oil Crisis" hit - Japanese and Aussie 4cyls came in, V6s looked like better technology and were developed and new V8 models failed to sell and were pulled (it killed V8's for a while).
Ahh - lucky for the Hemi V8/V10 - they can shut off the unused cyls - sustained high prices may mean a fall in sales of these large-capacity blocks vehicles to "marginal" buyers - buyers who are on the egde of being able to afford to run a large-displacement engine (the wanna be HumV owners lol).
What else is different is that gas-powered options for V8 vehicles are available - we might see more factory-equipped gas cars being produced - that might save the Aussie V8 industry....will be interesting...will Aussies go 4cyl or keep their beloved V8's by running them on gas (as long as they can get their vehicle converted - I mean the waiting time in Sydney is now Jan '06!!).

[180HOA]

I think if the Aussie car industry doesn't make a dramatic shift in style very soon it deserves to die... The price of all fossil fuels is only going to go up. Ford/Holden/Toyota/Mitsubishi can either prepare themselves for this and actually progress, or they can do as they have done for many years now and cling to a sinking ship.

I really believe that if Holden thought fuel prices were going to drop again in the long term, that they wouldn't have gone to the expense of offloading 1400 workers. Add to that we're heading into a Northern Hemisphere winter and I just can't see prices coming down substantially, if at all.

[blackSRi]

You're dead right, things have to change - this has been forecast by a number of economists and other academics. Many many factors affect fuel prices - supply factors and demand factors - the major factors are China industry and domestic demand and supply issues. The traditional US stocking up on heating oil for winter always has a upward effect on the price of oil world-wide - it's a double whammy this year, supply issues, high summer demand before the lead up to winter.

[01CDsedan]

I think if the Aussie car industry doesn't make a dramatic shift in style very soon it deserves to die... The price of all fossil fuels is only going to go up. Ford/Holden/Toyota/Mitsubishi can either prepare themselves for this and actually progress, or they can do as they have done for many years now and cling to a sinking ship.


If by 'dramatic shift in style' you mean switch to making small cars, forget it, if that's the case then the Australian car industry is doomed - because we can't make small cars at a price that can compete with imported products.

The one thing we are good at is big cars, and that's the one thing that can keep the Aussie car industry going. Why? Because we're the only people in the world making big RWD cars at mainstream market prices.

[rjastra]

But why do you say that? Most leasing companies that cover salary-sacrificed customers buy vehicles at fleet discount - a significant amount usually - and usually pass this on to their client, so the difference is nominal between a company buying at "fleet" and an individual going through a "fleet company" to salary-sacrifice.
I am with Easifleet, managed out of Sydney and they give me fleet discount rate on my salary-packaged car, and new car I am getting quotes on now.


But.... in the past copmpany cars were usually sourced from local manufactureres and there was little or no choice available to the employee.

With the move to salary sacrificing there is no requirement for the employee to be saddled with a Commodore/Falcon. They can get anything. What the company gets is no liability for vehicle.

The novated lease is one of the reasons for the growth of 4wd sales.

Purely private buyers are going ewith small cars or the mid sized cars (mazda 6 etc). Both segments are booming.

Why anyone would privately buy a Falcon/Commodore is beyond me. Those huge fleet discounts lead to poor resale values. And yes i know that going through a leasing company can get you the same discounts as "fleet".

[01CDsedan]

Why anyone would privately buy a Falcon/Commodore is beyond me. Those huge fleet discounts lead to poor resale values. And yes i know that going through a leasing company can get you the same discounts as "fleet".

Because there's still nothing else with the same combination of size/performance/equipment/price around.

Buying a one or two year old one is usually a better idea, but if you keep your cars for a decent period of time, depreciation from new is much less of an issue anyway.

[180HOA]

If by 'dramatic shift in style' you mean switch to making small cars, forget it, if that's the case then the Australian car industry is doomed - because we can't make small cars at a price that can compete with imported products.

The one thing we are good at is big cars, and that's the one thing that can keep the Aussie car industry going. Why? Because we're the only people in the world making big RWD cars at mainstream market prices.

The trouble is, the mainstream market doesn't seem willing to pay the price anymore; because they're buying other things, the 'mainstream market price' is falling. We either need to work out a way to competitively build smaller cars - and that doesn't just have to mean price - quality/style/image/etc are all just as valid. Alternatively, we need to find ways of making large cars more efficient. Diesel maybe. Or serious weight reductions. And what happened to the Hybrid Ecommodore they pranced about with in the late 90's? They've had the best part of ten years and done nothing with the concept - which proves that Holden's attitude to the environmental cause is little more than lip service. Fuel prices have been consistently rising for more than 6 years, and large car sales have been consistenlty falling for a decade. Everyone knew this was coming - so what have Holden been doing in that time? I don't think Hanenberger deserves the Halo he's been awarded, because his time was when Holden should have been working all this stuff out.

[rjastra]

Because there's still nothing else with the same combination of size/performance/equipment/price around.


For the cost of an Acclaim you could just about squeeze into an Accord Euro Luxury or a V6 Accord.

On a features/$ basis the Accords beat the Acclaim hands down.

Even for the price of an Executive I can get a much better equipped 5 speed auto Mazda 6. That will use less fuel and have better resale at the of 4 years.

[01CDsedan]

The trouble is, the mainstream market doesn't seem willing to pay the price anymore; because they're buying other things, the 'mainstream market price' is falling. We either need to work out a way to competitively build smaller cars - and that doesn't just have to mean price - quality/style/image/etc are all just as valid.

Sales of large cars haven't exactly fallen off the map just yet; they're down in terms of market share but still healthy. It's also worth noting that all of the cars made here are coming to the end of their model life, and the market knows that. Why would you buy a new Commodore, Magna or Camry today knowing that in a year from now, all three will be totally different and your old model will be utterly out of date?

It doesn't matter how you look at it though; making small cars here no longer makes economic or practical sense. Try to beat the imports on price and you'll fail, or end up building an inferior car to try and keep the cost down. Try to beat them on quality/style/image and you might be on to something, but it will cost more than its imported competition, even those with a similar level of quality etc.

There is simply no rational argument that can be put for building cars in Australia for a market of this small size when those same cars could be imported from a much more efficient plant making cars in much larger volumes overseas.

In the long run, in all honesty, Ford and Holden will be the only people left building cars in this country. Toyota Australia must really hope that the Camry never takes off in China, because the moment it does, you can forget making Camrys in Melbourne when you could just make them in China for far less and import them.


Alternatively, we need to find ways of making large cars more efficient. Diesel maybe. Or serious weight reductions.

That would help, and so does making as many cars as possible using the same basic set of components - both Ford and Holden do this brilliantly with the many variants they make out of the one basic setup. Finding markets to export these products to is the other side of the puzzle. The local industry has done pretty well for itself at that too in recent years.

Which is why I keep saying the only thing we can really viably build here is bigger cars - they're not made anywhere else, and therefore, there's nobody in the world who can compete with us when it comes to making them. They have to buy them from Australia. It's what we're best at - our 'comparitive advantage' in economic terms - and it wouldn't make sense to move away from that into things that other people can beat us hands down at.

The manufacturers know this - that's why all of the models made here are big cars. You can't tell me they've all been going down the wrong path...

[01CDsedan]

For the cost of an Acclaim you could just about squeeze into an Accord Euro Luxury or a V6 Accord.

On a features/$ basis the Accords beat the Acclaim hands down.

Even for the price of an Executive I can get a much better equipped 5 speed auto Mazda 6. That will use less fuel and have better resale at the of 4 years.

'squeeze' is exactly the problem - the Accord and Mazda 6 are a size smaller than the Commodore and Falcon, and have inferior performance.

Nice cars, but they're not in the same market segment.

[rjastra]

'squeeze' is exactly the problem - the Accord and Mazda 6 are a size smaller than the Commodore and Falcon, and have inferior performance.

Nice cars, but they're not in the same market segment.

Sigh.... the point I am making is now that people have the "choice" they usually decide to go with the better value option.

How else do you explain the huge swell in sales of medium sized cars and the continually decay in full sized car sales? You want a large vehicle and you are paying for it.... most seem to buy a 4wd!

When it comes to buying a car with you "own" money then the Falcon/Commodore etc may little sense to the majority of the buying public.

I can see Ford/Holden/Mitsubishi/Toyota fighting over an ever shrinking large car market share.

[180HOA]

01CD:

I agree that a lot of your points are valid at this point in time. My point was simply that things don't stay the same forever. The large car market has been suffering a long-term decline in market share and volumes.

The trouble is, I think, that the Falcodores only competetive advantage is that they are big and relatively cheap to purchase. Quality is mediocre, efficiency (in engineering and packaging) is pretty ho-hum, they're not particularly interesting - let alone fun, and are less practical than a 4x4/SUV.

Unless you need to carry four adults I really can't see the point in buying one.

You pointed out yourself that 15-20 years ago it became more cost effective to import small cars rather than build them here. What's to say the same won't happen to large cars? I'm sure both Ford and Holden could find something from the US that would substitute.

Also, that was 15-20 years ago. Then, we were all buying big cars. Now, small and medium cars are the big sellers in our market. maybe they would be viable here. Not having to give away $2-4k worth of petrol with each one would surely increase the attractiveness of building smaller cars to Holden...

While the market has changed, Ford and Holden haven't (aside from Adventra/Territory and a couple of other things Holden cobbled together). They're still basically selling the same sort of car they always have.

There's a saying about putting all your eggs in one basket...

[blueraven]

the one thing i really dont understand is why australia hasnt embraced diesels like europe has.

we are leaders in converting to gas though, i remember being ridiculed more than 10 years ago in high school in south africa when i said our old car ran on gas...about 20 kids sneered back at me "thats just what americans call petrol!!" oh, silly me i must be wrong.. (having lived in south africa for 8 years, i can say they are without doubt the most ignorant people, if its not in front of their freakin faces, they wont believe it.)

anyway, back to diesel. there are loads of little hot hatches on the market in the uk and europe, being powered by turbo diesels. read some the current reviews and match ups against the same class cars on petrol, and quite often they are at least on par. (in fact praise is normally heaped onto them in reagards to torque...)


if i could get my hands on one i would take it in a flash.

[Red AH SRI T]

Another reason Large cars are selling less and less is the fact that they are all at the end of their model cycle

Next Mitsu next month, Upgraded falcon next month with all new model 2007, All new Commodore next year and all new Avalon next year too

Would u be buying a large car now?

I think not