By Andrew Main

It was going to happen sooner or later: the boom in new car sales in Australia, which seems to have been running since we dodged the GFC, has shown significant signs of running out of steam.

The best indicator of prosperity in the listed space is AP Eagers, the Brisbane-based distributor that will sell you anything from a Holden to a Mercedes.

CEO Martin Ward told shareholders last week that national sales of new vehicles fell by 2.8% in the first four months of 2017.

Eagers shares fell by 6% in one day last week and that was before Ward made his comment. They had been close to $8 until a week ago but closed at $7.50 yesterday.

Major player Automotive Holdings, which is 22.8% owned by AP Eagers, saw its shares drop by 10.4% on Thursday to $3.03. Since then, they have eased to below $3.

So what’s going on? Western Australia and Queensland have apparently been leading the retreat, thanks to the end of the mining boom.

Both states are loyal to Holden and Ford’s big cars which are now going out of production. If anything, that change should have provided a fillip to sales but for most people savings are more important than brand loyalty.

Queensland vehicle sales were off 5.9% and that wasn’t as bad as WA, although Ward declined to say how bad that was.

He was being diplomatic. This comparison is not “like for like”, but in the first three months of this year, WA sales were off 9.2%, with passenger car sales down a whopping 18.3%.

Issues facing the car industry

As AP Eagers chairman and stockbroking legend Tim Crommelin put it, the calendar year 2016 was unusual.

“It was characterised by continuing comment around industry disruption, electric cars, battery operated cars, ride sharing, driverless cars - and you can be assured this will continue,’’ he said.

That sentence neatly summarised the biggest issues the car industry faces, all of which will make life hard for the sellers of conventional internal combustion engine driven cars.

And he didn’t even mention Amazon, that incubus looming over the retail sector in Australia, which late last year did a deal with Fiat Chrysler in Italy to sell small Fiat cars at prices approximately 30% below current levels.

We don’t live in Italy and we can’t all squeeze into the Fiat 500 model that they’re focusing on, but that’s just another potential negative out there that could turn into a monster.

So, are car dealers doomed in Australia? Well, no. We will still need to get around, in whatever form of futuristic conveyance the market wants to offer us, shared or not, driverless or not.

They will still need fixing and perhaps most importantly, they will still need financing.

The real cream for new car sellers in Australia is the financing, to the extent that in the last 12 months there have been two ASIC reviews and two ACCC investigations into aspects of how new cars and their associated insurance are sold.

But what’s clearly a problem for the dealers is the uncertainty surrounding where the new car market is going. Unlike the advertising market or the newspaper market, it’s not undergoing a near-overnight transition because there are a lot of uncertainties still out there.

Just last week, Hamish Douglass, the well regarded founder of Magellan Group, told an investment seminar that he believed electric car pioneer Tesla may not have a long-term future under its current business model.

Having written off Uber as “One of the most stupid investments in history,” he went on to suggest that “the probability of Tesla surviving in the long term is actually pretty low as well.’’

He’s no Luddite: his point is that both organisations assume cars will have drivers in them, whereas he believes the future is with driverless cars, with Google taking the lead in that area.

His speech was reported fairly and clearly by Fairfax columnist Elizabeth Knight, a noble effort since her husband Alex Pollak, founder of disruptor fund Loftus Peak, is a firm fan of Tesla.

He recently gave a very positive interview on Switzer TV about Tesla and other innovative groups in which Loftus Peak has investments.

(Declaration: I have known both Lizzie and Alex for decades and applaud the civilised debate).

All of which suggests that buyers have cooled down slightly on buying a new car, not just because of the downturn in the West Australian and Queensland economies, but also because of the belief that new and ground-breaking automotive developments may be just around the corner.

My guess is that because of the multiplicity of new technologies, it may take slightly longer for new technologies to arrive in Australia at price points which will make them more attractive than conventional vehicles.

It’s not impossible. As Alex Pollak noted to Peter Switzer, there are fewer moving parts in an electric car than in a conventional one.

And the dealers? Let’s assume that Amazon has more immediate fish to fry than the new vehicle business in Australia.

Local new vehicle suppliers such as AP Eagers and Automotive Holdings will have to be nimble to avoid having too many cars of the wrong type in stock, but that’s hardly a new issue for them.

Just don’t expect their profitability to grow in a nice straight line.