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New car sales continue to grow

Australians continue to buy new cars in ever increasing numbers.

Almost 100,000 new cars were sold in October 2012, according to the Australian Bureau of Statistics (ABS).

Sales of new cars have climbed 8.6% since October last year, although flooding in Thailand in June 2011 may have temporarily caused a decline in new car sales in the second half of last year, says the ABS. However, sales were down 2.8% (seasonally adjusted) compared to the previous month.

Related: Save up to $15,000 on a ‘new’ car

Car sales in Western Australia were the strongest, rising 21.5% (seasonally adjusted) compared to last year, which may be a factor of workers involved in the resources industry making use of their comparatively large pay packets. Queensland and NSW recorded much smaller rises of 6% and 4% (seasonally adjusted), respectively.

For listed companies with vehicle dealerships, like Automotive Holdings Group  (ASX: AHE) and AP Eagers Limited (ASX: APE), the continued rise in sales is good news. The problem for them is competition is intense, with more than 60 brands competing for consumers’ attention. That may be why consumers are being offered no-interest finance loans and massive discounts to buy ‘near new’ or ‘demo’ models. That is illustrated by the above two companies having consistent profit margins of less than 2%.

For after-market accessories retailers, like Super Cheap Auto – owned by Super Retail Group (ASX: SUL), and ARB Corporation (ASX: ARP), whether the level of new car discounting   makes little difference to their businesses. For these two companies, it’s generally just the number of cars on Australian roads that affects their businesses – with the more the better.

Foolish takeaway

While the number of new cars sold continues to grow, its likely that the dealerships will still struggle to increase their profit margins, mainly due to heavy competition. Foolish investors may want to consider by-passing the listed new car dealers.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.  The Motley Fool ’s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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