MENU

Carsales missing the new car smell

Financial services firm Taylor Collison has produced a research report detailing a sharp drop in new car sales on the flagship Australian website of Carsales (ASX: CRZ), carsales.com.au.

Since it started collecting the data in September 2012, there has been a 28% decline in new car listings. The drop has primarily come from Holden, Nissan, Honda, and Volkswagen, as it is believed that the manufacturers have directed dealerships to pull most new car listings.

The report showed that listings peaked in May this year, and that the volume reduction was consistent between carsales.com.au and rival carsguide.com.au (owned by News Corp (ASX: NWS)). This indicated that there had not been a distinct market share loss by Carsales.

The analysts concluded that the trend wasn’t a coincidence after seeing a memo from Honda to dealers advising that they would no longer be able to add new cars after an internal deadline. It appears that similar instructions from other manufacturers followed soon after, with massive drops in listings over just a five-week period. During that period, Holden new car advertisements dropped 90% from 4,635 to 436, and Nissan ads fell from 870 to 304.

The reason for the decision is that dealers are receiving lower margins due to increased competition and increasingly savvy shoppers hunting for a bargain. With fewer new cars advertised online, consumers have less room to negotiate when it comes to purchasing from the dealer, thereby maintaining profit margins.

But how bad is this really for Carsales? The analysis noted that clearly not all manufacturers were taking this action, and that the willingness of manufacturers to advertise new cars on Carsales.com.au is largely determined on a case-by-case basis. For example, Audi has consistently had around 800 listings versus fewer than 10 for BMW, indicating that some companies prefer to avoid online listings for the reasons listed earlier.

Additionally, Carsales is the dominant website in the industry and has plenty of pricing power if push comes to shove. Used car dealers are dependent on the website to provide leads, and having already increased ad prices from $30 to $40 this year, there appears little in the way to stop Carsales making further increases.

Foolish takeaway

While the reduction in business is certainly not great news for Carsales, it is expected that the company will be able to recoup much of the lost revenue by increasing costs of other services. Shares dropped 3% on the release of the report, however Carsales remains the dominant player in the space and will likely remain that way for some time to come. Carsales shares are up 47% this year so far and any short-term selling as a result of the Taylor Collison report may present a buying opportunity for long-term investors.

One weakness of Carsales is its poor yield of 2.6%. Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading


Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.