‘Unusually strong’ demand powers Eagers Automotive profits

Eagers, Australia’s largest car dealer group, is set to beat its last full-year profit in under six months, as demand outstrips supply.

Eagers executive Keith Thornton at a Brisbane showroom. Picture: AAP

Australia’s largest car dealership group Eagers Automotive has benefited from “unusually strong market dynamics”, with a global shortage of new cars combining with a resurgent Australian economy to deliver an expected $105m profit for the first three months of the year.

It means the $3.9bn company – headed by newly installed CEO Keith Thornton – has made two-thirds of its bumper 2020 full year profit of $156.2m in just one quarter of the time, but without the benefit of the nearly $130m in Jobkeeper payments it received last year.

In a statement to the ASX on Friday the company credited the result to the unusual market dynamics which were “characterised by demand outstripping supply” as well as “the ongoing benefits of our material cost out program completed over the last 12 months.”

“The company remains focused on balancing the risk of changing market dynamics with the continued internal execution against our Next 100 strategy and disciplined cost base management,” the company said.

Eagers Automotive’s trading update comes as new car sales roared back to life in the last quarter of 2020, after almost three years of solid decline.

In March alone 100,005 new vehicles were sold across Australia -an increase of 22.4 per cent on March of 2020.

The increase in sales was marked by a shift away from passenger vehicles – which remained broadly similar to March 2020 levels – and towards utes and SUVs, which saw sales growth rates of 28 per cent and 32 per cent respectively.

Federal Chamber of Automotive Industries CEO Tony Weber last week said a surge in demand for vehicles as being met by supply constraints: COVID-19 has shuttered many overseas car production lines while a global shortage of semiconductor microchips used in many modern cars is still months away from being resolved.

The shortage in the supply of new cars has had the added impact of pushing up the price of used vehicles.

Earlier this week Moody’s analytics said used car prices in the first quarter of the year were on average 37 per cent more expensive than they were pre-pandemic.

Eagers Automotive said its profit forecast for the first quarter of the year did not include the $108m sale of its Daimler Truck Operations and Milperra property to US-based Velocity Vehicle Group.

The transaction is on track to be completed in the first half of 2021 and will be recorded upon completion.

The sale is estimated to deliver net gains before tax of $32m-$36m.

Shortly after 1pm (AEST) Eagers Automotive was trading at $15.47 per share, up 1.91 per cent.