It has been difficult to find any good news around the new car market of late. Last week, the Federal Chamber of Automotive Industries (FCAI) announced a decline of 9.8% in new car sales in June, the largest decline this year. June is typically a bumper month for new car sales, with customers taking advantage of a range of end-of-financial-year deals and tax incentives. Alarmingly, it was the largest June decline in seven years.
Let's look at a couple of quite different auto-related companies and see how the dust is settling.
Carsales.com Ltd (ASX: CAR)
Carsales.com is a highly visible online market for new and used cars, which enables dealers and private citizens alike to buy and sell cars. Carsales.com's primary source of revenue is built on charging listing fees to vendors. In January this year, the share price hit a 6-month low of $10.79 per share. Despite an environment of declining new car sales, the share price has defied expectations and increased 27% to close today at $13.85.
Successful expansion into international markets and strong results in the used car sales side of the business are driving growth and building momentum. Last year Carsales.com returned a very reasonable, and steadily increasing, fully franked dividend of 44.3 cents per share.
I think one of Carsales.com's biggest advantages is the ease of use and simplicity of the website. The site is beautifully designed so that literally anyone with even minimal experience at selling their own car out of the driveway can take on board a bunch of pro tips and advice to simplify the process.
AP Eagers Ltd (ASX: APE)
AP Eagers is an entirely different kettle of fish to Carsales.com, despite being in the same buying and selling cars market. Where Carsales.com is a car sales "enabler", AP Eagers is a retailer. The company's diverse remit includes conducting repairs and service, purchase and sales of parts and accessories, selling warranties, substantial investments and various financing and leasing programs, from dealerships situated around Australia. The company owns a lot of that real estate too, valued at $332 million, which you'll find on high profile prime commercial locations.
Like Carsales.com, AP Eagers hit a six-month low back in January at $5.70 per share and has also steadily improved since then, closing today at $10.25. The company acknowledged a difficult new car sales market in its 2018 full-year report, with 2018 seeing the first decline in that segment in four years. However, dividend seekers will be pleased with a steadily increasing, fully franked dividend of 36.5 cents per share.
Looking for growth opportunities to buffer against a potentially drawn out period of lower new car sales I could point to the acquisition of two new properties in Queensland and New South Wales. There's continued expansion with the purchase of Toowoomba Motor Group (Mitsubishi and Kia), Metro Nissan (Brisbane) and Southern Vales Nissan (Adelaide) in 2018. Most compelling is the commitment to build a new "automotive retailing and mobility hub" inside Brisbane Airport's new "BNE auto Mall".
Foolish takeaway
It's impossible to tell if we are living through a blip in new car sales or if it's something more substantial. The trend line is certainly concerning, but the smart operators in the sector are potentially diversified enough to weather a prolonged downturn. Both Carsales.com and AP Eagers have plenty of projects on the boil and expansion plans, giving investors looking for some resilience and growth in the automotive sector some food for thought.
