Will these ASX car dealers bounce back after COVID-19?

With social distancing restrictions relaxing across the country, how will ASX automotive retailers bounce back from COVID-19?

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Since bottoming out at $2.90 on March 25, shares in ASX automotive retailer AP Eagers Ltd (ASX: APE) have almost doubled in price in recent weeks and are now back up to $5.43 as at the time of writing. With sales slumping during the coronavirus lockdowns, new investors have responded positively to the raft of cost-cutting measures the company has put in place to see it through the crisis.

Towards the end of April, AP Eagers announced that it had made the difficult decision to cut around 1,200 employees from its workforce at a saving of around $6 million a month. Those at the top of the company will be feeling the pinch as well, with non-executive directors foregoing their director fees and senior executives taking a 50% pay cut. AP Eagers has also been working with its landlords, suppliers and other key stakeholders to defer lease commitments and other payments. It has also frozen all non-essential capital expenditure.

The company's balance sheet remains strong, with $270 million worth of cash and undrawn debt facilities still at its disposal. Additionally, the company's suppliers have provided it with $122 million worth of working capital facilities.

Finally, it's also worth noting that the sale of the company's refrigerated logistics business to private equity firm Anchorage Capital Partners is still progressing. However, AP Eagers has now had to settle on a $75 million sale price instead of the originally agreed $100 million due to the negative economic impacts from the coronavirus.

Shares in ASX digital car classifieds business Carsales.com Ltd (ASX: CAR) have also performed well recently, up almost 40% from their 23 March low of $10.47 to $14.27 as at the time of writing. In its most recent COVID-19 update, released to the market on 23 April, it announced a similar range of cost-cutting measures that it hoped would see it through the crisis.

As with AP Eagers, Carsales has decreased the size of its workforce, temporarily standing down around 250 mostly frontline staff. Board and executive remuneration for the remainder of the financial year have also been slashed by 20%.

Interestingly, Carsales noted that traffic to its website had remained high throughout the pandemic, despite lead volumes dropping by 25% in April. The international arms of its operations have seen varying impacts from COVID-19: while the Brazilian geography has suffered in recent weeks after escalating outbreaks in that country, revenues in South Korea have continued to grow.

Should you invest?

Even in an economic downturn, people will still have a need for cars and other vehicles. This doesn't exactly make AP Eagers or Carsales defensive plays, but both should continue to generate revenue even in a prolonged period of economic recession. After all, the AP Eagers company has a history dating back over 100 years.

However, there may still be a shift in demand away from luxury brands and towards cheaper used cars. If this occurs, it could theoretically present a greater rebound opportunity for online classifieds business, Carsales. Consumers may be less inclined to visit dealerships and may instead choose to buy their cars directly from the seller online.

Not only that, but as Carsales is now an internationally diversified company with operations in both Brazil and South Korea, these global revenue streams could also help to keep the company afloat during these uncertain economic times. And with its shares trading almost 25% below their pre-coronavirus highs, Carsales may still offer good value to new long-term investors.

Motley Fool contributor Rhys Brock owns shares of carsales.com Limited. The Motley Fool Australia has recommended carsales.com Limited. 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 Scott Phillips.

More on Share Market News

A happy young couple lie on a wooden deck using a skateboard for a pillow.
Share Gainers

These were the best-performing ASX 200 shares in March

These shares made their shareholders smile in March thanks to some very big gains.

Read more »

Businessman using a digital tablet with a graphical chart, symbolising the stock market.
Opinions

2 ASX shares I have been buying in 2024!

I’m a believer in the long-term outlook of these stocks.

Read more »

Stock market chart in green with a rising arrow symbolising a rising share price.
Share Gainers

Here are the top 10 ASX 200 shares today

It was a massive day for the ASX 200, with a new all-time high recorded.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Technology Shares

This ASX tech stock rocketed 60% in March! Can it keep on delivering?

After soaring in March, the ASX tech stock is now up 169% since this time last year.

Read more »

Broker Notes

Brokers name 3 ASX shares to buy now

Here's why brokers are feeling bullish about these three shares this week.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Burgundy Diamond Mines, Clarity Pharmaceuticals, EML, and Zip are sinking today

These ASX shares are ending the week in the red. But why?

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Mesoblast, Newmont, Pilbara Minerals, and Platinum shares are jumping

These ASX shares are ending the week strongly. But why?

Read more »

a young boy dressed up in a business suit and tie has a cute grin and holds two fingers up.
Opinions

2 of my top ASX 200 shares to consider buying before April

I would happily exchange dollars for these two shares right now.

Read more »