Sometimes when investing it pays to ignore the short term headlines and go against the prevailing sentiment. Car retailing is a business that has been around for well over a century. In Australia, one of the largest, and oldest car retailers is Eagers Automotive (ASX:APE). They were founded in 1913 and listed in 1957. Today they have a market capitalization of over $3.1 billion and turnover exceeding $10 billion. They are the number one new car retailer with over 10% market share and the number one used car retailer.
So they know how to sell cars. That said, new vehicle sales in Australia are currently under a bit of pressure. The Australian Financial Review reported that at a car dealer’s conference in July, dealers were concerned that conditions were getting considerably worse. Inquiries were down 30% and orders were down 10%. Margins had fallen nearly 20% and were expected to fall further.
This fear has been borne out. According to the Federal Chamber of Automotive Industries (FCAI) new vehicle sales slumped 11.6% in November compared to November 2023. Furthermore, since July, sales have declined 8.2% when compared to the same period last year. It is even worse when looking at the private buyer segment with falls averaging 16% over the last four months. Clearly cost of living pressures and high interest rates are having an impact on discretionary purchases like new cars.
Discounting, particularly across electric vehicles, has increased as dealerships need to clear stock. Tesla’s have been coming down in price and MG recently dropped the price on their MG4 model by $10,000 or about 25%. Cheaper Chinese made EVs are putting pressure on premium electric vehicles.
This recent experience follows what had been a relatively strong period for new vehicle sales and also for used vehicles. In the first six months of 2024 the market recorded new vehicle sales growth of 8.7%. In fact, the market was at record levels.
In the midst of all this doom and gloom, Eagers Automotive have a StockRank score of 95. They are not immune to the industry wide pressures, but investing when others are cowering under the blanket can often be a profitable strategy if you have the stomach for it.
Starting with the Quality score, at 67 it is decent but not outstanding. It…
