Motley Fool Australia

Should you sell your AP Eagers Ltd and Automotive Group Holdings Ltd shares?

car

What: Last week, an article in the Australian Financial Review (AFR) reported that the Federal Government was considering lifting a ban on the direct importation of new cars from overseas.

The government’s proposal is aimed at reducing the price paid by Australians which would be welcome news to most consumers, however it would more than likely spell bad news for Australia’s two largest car retailers AP Eagers Ltd (ASX: APE) and Automotive Group Holdings Ltd (ASX: AHE).

So what: The AFR’s article provided comparisons which highlighted the higher prices being heaped upon new cars in Australia compared to overseas, suggesting that either car manufacturers or retailers or both are extracting above average profits from Aussie consumers.

Now what: Shareholders in AP Eagers have enjoyed impressive gains over the past 12 months with the shares price gaining 71.5%. In comparison, the share price of peer Automotive Group is up just 3.7% which is less than the 7.7% gain in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Shareholders in both companies should watch developments in this space closely. While online purchasing from foreign-based retailers hasn’t brought all industries to its knees, in some cases, particularly apparel retailing, it has.

Indeed one of the world’s youngest and most innovative automotive manufacturers, Tesla Motors Inc, operates a direct sales model and sells its cars exclusively online. There is no reason to think that Australian consumers couldn’t be tempted by a lower priced direct import offering.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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