Last year Holden's Commodore lost its crown as Australia’s top-selling car. The shock wasn’t that the Commodore’s 15-year reign had ended – after all, Holden and Ford had been swapping the mantle for 70 years – but that Australia’s new favourite was the smaller Mazda3. Not only had buyers moved away from the traditionally dominant big cars, for the first time since the early 1900s the No. 1 car Down Under was an import.
Even more shocking to industry observers was that the Mazda had stolen Commodore’s title without resorting to fleet business – usually more than 50 per cent of Commodore sales.
“While some dealers do go out and seek small fleet deals with businesses local to their area,” says Mazda Australia public relations manager Steve Maciver, “Mazda Australia does not have a fleet program. Our focus is on private buyers. While this does also inevitably extend to [fleet] user choosers, we don’t take a different approach to these particular buyers.”
Now into its second generation, the Mazda3 had long been Australia’s top-selling privately owned car, but there is still some question over how many private sales there are, as opposed to novated lease (where insurance and running costs are included) sales recorded as private sales.
Holden director of sales Philip Brook warns that there are some inconsistencies in how new vehicle sales data is recorded.
“There are three types of employees,” Brook explains. “Those who use their company car as tools of trade [for example, sales representatives], those in management who have cars as part of their package and finally, employees who get no car.
“To keep costs down and assets off the books, those in the second category are now being offered a car allowance and companies are moving to external fleet-management organisations (FMOs). Even some employees in the third category are salary sacrificing to get a car. How we [the industry] categorise a sale is what leads to some rubberiness in the figures. A novated lease can be recorded as a private sale or a fleet sale.”
Regardless of how the sales are recorded, the numbers are huge. In 1993 when new car sales were first recorded by industry body Vfacts, the private market was 44 per cent of the total market. Private sales are now 47 per cent of the market. However, the total market in 1993 was about 555,000 and today it’s 1,008,000. In real terms, the private market has grown from 243,000 to 479,000. Over the same period there’s been a similar trend up in business fleet sales from 40 to 44 per cent of the total market. Again, in real terms, the fleet market has nearly doubled from 224,000 to 444,000.
The explosion in both fleet and private sales has been driven by the incredible diversification of the market. In the past decade alone, the number of individual models on offer in Australia has more than doubled from about 700 to 1500.
The choice is mind-boggling and buyers are savvy. They want value for money and all the niceties they can get.– Nigel Malcolm
Brook explains the effects on the fleet business: “Ten or 15 years ago, if you worked for a big company, you probably had the choice of just a few cars. If you were lucky you might have been allowed to choose the colour. Now, so long as the vehicle falls within your novated lease budget and meets whole-of-life cost targets and the OH&S [occupational health and safety] requirements of your company, you have almost complete freedom of vehicle choice. That’s why consumer behaviour of a novated lease buyer is just like that of a private buyer.”
Nigel Malcolm, CEO and founder of Fleetcare, the largest privately owned fleet management organisation in Australia, agrees: “Gone are the days of the Commodore-Falcon fleet. Employees taking up novated leases enjoy not only the tax benefits but also the ability to drive whatever they want and can afford. The choice is mind-boggling and buyers are savvy. They want value for money and all the niceties they can get. This is what has propelled the likes of the Mazda3 to the top of the new car list in 2011 [a position it consolidated through the first quarter of this year]. When it comes to fleet selection, I feel the novated buyer has done a better job than most fleet operators.”
Brook says that FMOs represent more than half of all fleet business and working closely with them is of critical importance to Holden. “We do everything to make our product and offer as attractive as possible. FMOs are looking at whole-of-life costs of cars [fuel usage, servicing costs and retained value], which is why we’ve pushed hard to make sure FMOs understand our product and pricing structure.”
Malcolm alludes to the same situation from his side of the business: “This is where some manufacturers don’t understand the influence the FMO has with their clients. Many of the traditional car companies talk to the fleet operator, but forget about the FMO and then wonder why things aren’t working. The progressive manufacturers are working closely with FMOs and fleet operators to not only get the vehicles in at the right price and to meet supply, but also to understand the needs of clients, which is influencing the future design of vehicles. This is true collaboration.”
However, not every manufacturer is chasing a bigger slice of the fleet pie. Like Mazda, Mercedes-Benz Australia has firm views on the money to be made in fleet sales. David McCarthy, senior manager corporate communications, explains: “There’s a misconception about how much money is in cars. Porsche is the only brand consistently above a 10 per cent margin. Most fall into the 6 to 9 per cent range. Some of the prices on fleet deals are so skinny they have to be volume builders to keep the factory doors open. Our goal is to sell every car at a profit.”
Certainly, when you consider the long-term decline of Commodore and Falcon sales, McCarthy’s point appears well made. From a peak of 94,642 sales in 1999 Commodore sales have more than halved, while Falcon sales have tumbled from about 81,000 in 1995 to fewer than 20,000 last year. Brook declined to give specific numbers, but admitted the pencils must be kept sharp on fleet deals.
Another area of decline, and one that has contributed to the woes of Holden and Ford, is government sales. Over the period 1993 to 2011 government fleet sales have dropped from 16 per cent of the total market to just 6 per cent. Despite the doubling of the market, that’s a drop in real terms from about 89,000 units to 58,000.
“A couple of things are happening,” Brook says. “Government fleets are keeping their cars longer and, like corporations, governments are moving away from department-assigned cars and switching towards novated leases and salary sacrificing.”
The most visible government fleet cars in Australia are those of the police. After a brief flirtation with British-made Mini Cooper S highway patrol cars in the 1960s, police forces around Australia almost exclusively used locally built vehicles for two decades. Every cop shop around the country had a procession of Kingswoods, Falcons and Commodores.
Then, in 1986, the New South Wales (NSW) Highway Patrol bought a handful of Japanese-built Mitsubishi Cordia turbo pursuit cars. Few realised at the time, but it was the opening of the floodgates that has seen an incredible diversification of the country’s police fleets. In NSW alone, police now use cars from Lotus, Nissan, Fiat, Alfa Romeo and Toyota, as well as the traditional Commodores and Falcons.
“The policy varies from state to state,” Brook says. “Policy is typically aligned with whether that state has an interest in the auto manufacturing industry. South Australia [where Holden’s manufacturing facility is located], Victoria [Holden’s HQ] and the Australian Government buy a majority of locally produced cars.
“Some states have different needs. Queensland police need 4x4s more than, say, the NSW or Victorian forces, so they would buy more imported Toyota 4x4 products.”
Despite the diversification of the police fleet, Brook maintains “we are very happy with the job we do around police fleets”.
The police services aren’t the only emergency fleets shifting away from locally produced cars. Ford Australia once had a lock on the nation’s ambulance fleet, specifically importing F-Series trucks for local conversion to ambulance requirements.
When this arrangement ended in 1992, the ambulance fleets briefly used converted Holden Commodore utilities before switching to imported Toyota Taragos, Volkswagen Transporters and, currently, Mercedes‑Benz Sprinters.
What of the taxi business? More than 90 per cent of the nation’s 20,000 taxis are Ford Falcons or Holden Commodores (mostly Falcons) and it’s mandated they must be changed over every seven years. Surely this is solid return business for the locals?
“The business case around taxis is very difficult,” Brook says. “That’s why we got out of it, and why Ford got out of it. Nearly all taxis, even the Toyota Prius taxis that are becoming more popular, are bought second-hand. Taxis represent only 400 to 600 new sales a year for Holden.”
The past two decades have seen a paradigm shift in the make-up of the Australian car market. Once-dominant Ford and Holden are on the wane, while former bit players such as Mazda, Volkswagen and Hyundai are looking like future industry leaders. It’s certainly not business as usual for car companies, fleets and private buyers.
Jesse Taylor is deputy editor of Wheels.
This article is from the June 2012 issue of INTHEBLACK magazine.