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Car sales spike but dealers say pie split too many ways now

Some distributors complain that price cutting and the resurgent parallel import trade have eaten into profits
Saturday, December 12, 2015 - 05:50
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BIG JUMP: A total of 28,932 new cars were put on the road last year. But with the COE quota expanding steadily from end-2014, 2015 could see this number jump to about 57,000 - or a 97% spike, based on the 45,038 cars registered in the first 10 months of this year.

Singapore

THIS year's total passenger car registrations may have doubled, but some car distributors lament that their profits have not risen proportionately due to keen competition and a wider spread of players.

A total of 28,932 new cars were put on the road last year. But with the COE (certificate of entitlement) quota expanding steadily from end-2014, 2015 could see this number jump to about 57,000 - or a 97 per cent spike, based on the 45,038 cars registered in the first 10 months of this year.

But some distributors complain that price cutting and the resurgent parallel import trade have eaten into profits.

"The increase in the COE quota has been good news for the industry, but authorised dealers did not get their fair share of COEs because there were more players in the form of parallel importers," said the sales director of Japanese dealership who did not wish to be named. "Sales volumes are higher but profit aspirations have been compromised. Of course, 2015's profit is still higher than 2014's but it would have been better if the pie were not split so many ways."

For example, the Honda Vezel is one parallel-imported model that has enjoyed enormous success this year. Collective sales of this compact crossover (a domestic Japanese model that is not the HR-V imported by authorised Honda distributor Kah Motor) are likely to make it one of 2015's top three models in Singapore.

With the expanding COE supply, the parallel import industry currently accounts for about 13 per cent of all new cars registered in 2015, or almost twice 2014's market share.

Besides parallel importers' business, aggressive pricing by some authorised distributors has also cut into profit margins.

One brand that has been doing exceedingly well this year is Mazda, with its Mazda3 likely to finish the year as Singapore's second most popular model among authorised distributors, after the evergreen Toyota Corolla Altis.

The sales director blamed price-cutting for the Mazda3's strong sales, but a spokesman for authorised Mazda distributor Trans Eurokars claimed there is "nothing special" about the company's prices.

"It is market pricing but our customers find our cars value for money because of our high specifications compared with our competitors," said the spokesman. "Mazda's good fuel efficiency and Continental-like roadholding are also attractive."

Not all authorised distributors are complaining, however. One of them is Tan Chong Motor Sales, whose Nissan Qashqai and Nissan Sylphy are in the Top 5 models among official imports.

General manager Ron Lim declined to comment on financial performance, citing listed parent company TCIL's rules. But he said that Tan Chong's shift in focus to crossover models such as the Qashqai and X-Trail has been successful.

"Some models may have been affected by competition but others were not. So, on average, it works out," explained Mr Lim. "Because of the perceived value of crossovers, they are seen as more of a premium offering, and the price that people are willing to pay for them is higher."

Authorised Honda distributor Kah Motor also appears sanguine about the situation. According to general manager Nicholas Wong, Kah Motor's 2015 sales figures should more than double from 2014's to about 3,000 units.

This is in line with the jump in the total of number of COEs in categories A (for small cars), B (big cars) and E (the open category) from 2014's 29,093 to 2015's 60,888, or a 109 per cent spike.

"We have definitely been affected by competition and PI (parallel imports). But our margins have also been affected by the erratic movements in COE prices," said Mr Wong.

One example was when the Cat A COE premium climbed by over S$3,000 two bidding exercises ago. "If your profit margin was S$2,000, then all that was wiped out," he said.

But he said that 2015 "is not a disappointment", although he would not comment on profitability, adding that "it was not as bad as we thought it would be". "Profit has definitely gone up and is within expectations. In our business, profitability is a bonus."

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