Tightening credit in the wake of the banking royal commission is curtailing sales of used cars as WA’s big auto dealers expand their presence in the $67 billion market to offset weakness in the new vehicle market.
Automotive Holdings Group chief executive John McConnell said yesterday the number of purchases falling over because of knockbacks from lenders was “actually much higher than people imagine”.
While about 36 per cent of new car buyers tap AHG’s finance arm to help fund their purchase, the figure for used car buyers has fallen to 28 per cent because of tougher criteria applied by the company’s affiliated lenders.
“There’s been an over-reaction by financiers to lending in the used car space,” Mr McConnell said yesterday after handing down AHG’s first-half results.
“The number of deals that are regularly falling over from an inability to allow consumers to get finance is actually much higher than people imagine.
“It’s a real unintended consequence of the royal commission, where the banks and financiers are worried about lending.
“I think it will ease up over time, but they are just being really cautious and that in turn is not helping business Australia because it is not encouraging people who would otherwise normally be able to get credit to do so in this environment.”
AHG plunged to a $226 million loss in the first half on the back of big writedowns booked last week on its auto and refrigerated logistics businesses.
But the group also yesterday said it had scrapped its dividend — it paid 9.5¢ last year — and suspended its payout policy as it battles the sales uncertainty shrouding the new car market.
AHG said its policy of returning between 65 per cent and 75 per cent of profit to shareholders had been shelved while it focused on debt reduction.
“The decision … is appropriate in an environment where market conditions continue to be challenged, and we see the emergence of bottom-of-cycle opportunities in the auto franchise sector,” Mr McConnell said.
Excluding those charges, profit fell to $24 million from $42 million, with revenue up 1.7 per cent to $3.2 billion.
AHG also cut its guidance for a lower full-year profit to between $52 million and $56 million, down from $56 million to $59 million in November.
AHG shares plunged nearly 9 per cent on the news before surging to close 15.5¢ better at $1.91.
“AHG … remain the largest auto group in Australia, in a segment where scale is becoming increasingly important, and where we expect consolidation to accelerate,” Deutsche Bank said. “Near-term earnings risks are high; however, there is valuation support and the prospects of M&A are high.”