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CY23 VFACTS Analysis

Key takeaways from 2023: •

BMW outsold Mercedes Benz (MB) in unit sales volume. This hasn’t happened in over a decade – last time we witnessed this it was 2011.

•

The Ford Ranger 4X4 was the #1 vehicle sold of the year, which ended the dominance of the Toyota Hilux after seven years on top.

•

Fleet vehicles accounted for 1 in 2 vehicles sold in 2023. We expect this to continue as 2024 will be the year of fleet and government sales.

•

China has produced 1 in 6 vehicles sold in Australia. Pitcher Partners expects that the Chinese Brands will account for close to 20%+ of 2024 units sold.

Without any doubt, 2023 was a fantastic year for the Australian automotive industry. Unfortunately, the current economic headwinds cannot be ignored and will likely impact on 2024 sales volumes as new cars continue to become more and more unaffordable due to increasing prices, rising interest rates, spiking insurance costs and household finances under pressure. 2024 will see OEMs and dealers returning to proactive selling (Road To a Sale RTaS) and heavy discounting combined with sub-vented finance making an appearance before the end of financial year (30 June). Be prepared for the EOFY and run-out ads starting in April running through the end of June. We are in close contact with our dealers, and they also suggested that customer orders (lead indicators) have not been nearly as strong as the deliveries (lag indicators) are showing.

25 20 15 10 5

Savings Raio (%)

Consumer sentiment index

Sep-23

Jan-23

May-23

Sep-22

May-22

Jan-22

Sep-21

Jan-21

May-21

Sep-20

May-20

Jan-20

Sep-19

May-19

Jan-19

Sep-18

May-18

Jan-18

Sep-17

May-17

Jan-17

Consumer Sentiment

Consumer Sentiment and Household Savings 120 110 100 90 80 70 60 50 40

Household saving ratio (%)

As we can see from the Consumer Sentiment Index in the graph above, consumers have a negative perception of the overall economy, and it’s at levels seen during the beginning of Covid-19. Additionally, the average household is almost not saving a dollar out of their monthly pay pack. The saving ratio is now at 1.1%, which is the lowest point ever recorded. (ABS started calculating it in June 2015).

Participation rate

Additionally, we saw the job losses in December 2023 at levels not seen since 1993 (outside the early Covid19 period). •

ABS data show the number of Australians in employment fell by 65,100 in December

•

The number of Australians in part-time jobs rose, but not by as much as the 106,600 fall in full-time employed;

•

This is the biggest single month drop since February 1993 (outside of Covid); and

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The unemployment rate remained steady at 3.9% due to a slump in the proportion of people in work or looking for it, refer above graph

As we can also see from the segmentation by buyers, backorders for private buyers are now starting to get fulfilled, and dealers have been allocating vehicles to less profitable buyers like business, fleet, and government. Business sales and Government sales have increased at a rate which was greater than the Private and Rentals. While 2023 was the year of fulfilling back orders, 2024 will be the year where dealers will need to get back to fundamentals and will need to drive demand by making sure that the dealership has a strong sales process in place. Discounting, discounting, and discounting. In 2024, we expect dealers to have to go back to discounting, as supply chain issues and ‘chipflation’ are now an old memory, dealers will have more stock at prices above what the current demand is willing to meet. December 2023 was once again, a record-breaking month with volumes up 12.1% and with 98,544 units sold. The best performing OEM’s pcp were BMW (+106.5%), Ford (+59.4%), and Isuzu Ute (+59.2%). For CY23, only 4 OEMs showed declines in terms of volumes compared to CY22, they were Mitsubishi (17.5%), Mercedes Benz (-9.3%), Toyota (-6.8%) and Kia (-2.8%). Tesla (+135.4%) had a strong performance compared to CY22 which was hindered by limited available supply, Nissan (+48.6%) performed incredibly well with its refreshened line-up, and GWM (+45.3%) has built momentum by offering vehicles at an affordable price.

Refer table below for the top 15 brands for CY23:

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Brand Toyota Mazda Ford Kia Hyundai Mitsubishi MG Tesla Subaru Isuzu Ute Volkswagen Nissan GWM BMW Mercedes-Benz

Market Share (%) Toyota Mazda Ford Kia Hyundai Mitsubishi MG Tesla Subaru Isuzu Ute Volkswagen Nissan GWM BMW Mercedes-Benz

Dec-23 19,281 6,765 9,826 5,583 4,887 5,134 3,834 2,192 3,623 3,987 3,613 2,658 3,862 2,005 2,045

Top 15 Brands by units sold Dec-22 Variance 16,274 18.5% 8,500 (20.4%) 6,165 59.4% 5,630 (0.8%) 4,434 10.2% 4,927 4.2% 5,194 (26.2%) 2,266 (3.3%) 4,071 (11.0%) 2,505 59.2% 3,059 18.1% 2,540 4.6% 3,295 17.2% 971 106.5% 1,586 28.9%

2023 215,240 100,008 87,800 76,120 75,183 63,511 58,346 46,116 46,114 45,341 43,821 39,376 36,397 26,184 24,315

Top 15 Brands by Market Share YTD 2023 17.7 8.2 7.2 6.3 6.2 5.2 4.8 3.8 3.8 3.7 3.6 3.2 3.0 2.2 2.0

2022 21.4 8.9 6.2 7.2 6.8 7.1 4.6 1.8 3.3 3.3 2.9 2.4 2.3 2.1 2.5

2022 231,050 95,718 66,628 78,330 73,345 76,991 49,582 19,594 36,036 35,323 30,946 26,491 25,042 22,696 26,801

Variance (6.8%) 4.5% 31.8% (2.8%) 2.5% (17.5%) 17.7% 135.4% 28.0% 28.4% 41.6% 48.6% 45.3% 15.4% (9.3%)

YTD 23 v YTD 22 (17.2%) (7.1%) 17.1% (13.6%) (8.9%) (26.7%) 4.6% 109.2% 13.7% 14.1% 25.9% 32.1% 29.2% 2.5% (19.4%)

Movements in the market share ladder: Toyota’s comeback wasn’t unnoticed finishing the year with 17.7% market share. Toyota’s sales improved drastically in the second half of CY23, however still finishing behind the peak of CY22 (21.4%). Mazda’s market share has been relatively constant at 8.2% and finished the year with a decline is market share of 7% compared to CY22. The third place goes to Ford (7.2%), which had a solid year thanks to the Ranger – the most sold vehicle of the year. The Korean brands Kia (6.3%) and Hyundai (6.2%) both underperformed when compared to the overall market movement, dropping market share compared to CY22.

Segmentation by buyer type As the backorders for private buyers start getting fulfilled, dealers in the second half of CY23 started allocating vehicles to less profitable buyers like business fleets, government, and rentals. Businesses (fleet) units sold are the main driver of the strong year performance. Business sales and Gov’t sales have increased YoY at a rate which was greater than the Private and Rental. We expect this to ramp up as 2024 will be the year of fleet and government sales. Passenger, SUV and Light Commercial Private Business Gov't Rental Total

2023 630,297 429,634 33,803 71,274 1,167,031

2022 580,495 362,060 27,197 64,318 1,036,092

Variance 8.6% 18.7% 24.3% 10.8% 12.7%

In the passenger market, despite a small 4% pcp increase in sales, the allocation of vehicles towards businesses have increased by a solid 19.7%, moving from 26% of units sold to 30%. In the SUV segment, we noticed the same trend as passenger vehicles, even if not as evident.

Fleet vehicles account for close to 1 in 2 vehicles sold. The increase in the light commercial space was underpinned by government buyers (+35.5% YoY) and business buyers (+9.4% pcp), with the segment seeing flat units sold among private buyers. Total Market Passenger Private Business Gov't Rental Total SUV Private Business Gov't Rental Total Light Commercial Private Business Gov't Rental Total

2023

Distribution

2022

Distribution

Variance

127,550 62,687 4,754 16,370 211,361

60.3% 29.7% 2.2% 7.7% 100.0%

124,712 52,350 4,957 21,037 203,056

61.4% 25.8% 2.4% 10.4% 100.0%

2.3% 19.7% (4.1%) (22.2%) 4.1%

418,614 202,648 14,797 43,403 679,462

61.6% 29.8% 2.2% 6.4% 100.0%

372,210 159,558 11,682 31,182 574,632

64.8% 27.8% 2.0% 5.4% 100.0%

12.5% 27.0% 26.7% 39.2% 18.2%

84,133 164,299 14,252 11,501 274,185

30.7% 59.9% 5.2% 4.2% 100.0%

83,573 150,152 10,558 12,099 256,382

32.6% 58.6% 4.1% 4.7% 100.0%

0.7% 9.4% 35.0% (4.9%) 6.9%

Segmentation by fuel type The SUV dominance continues. SUVs confirm themselves to be the consumer’s preference. SUV units sold for the year were 679,462 (+18.2% pcp), while passenger vehicles were 211,361 (+4.1% pcp). In the passenger segment, we saw electric vehicle demand increase pcp by 102.8%, while hybrids are up 7.4%. In the SUV segment, every sub-category (excluding hydrogen) is positive pcp, with significant increase to electric (+205.6%), and PHEV (+93.7%). In the light commercial space, no difference is noted compared to the previous year. Diesel is solidly the preferred choice dominating 90% of the sub-market as a reflective of the lack of alternatives. Total Market Passenger Diesel Electric Hybrid Hydrogen Petrol PHEV Total SUV Diesel Electric Hybrid Hydrogen Petrol PHEV Total Light Commercial Diesel Electric Hybrid Petrol Total

12,000

2023

Distribution

2022

Distribution

Variance

12,471 29,479 28,715 6 140,178 512 211,361

5.9% 13.9% 13.6% 0.0% 66.3% 0.2% 100.0%

10,676 14,533 26,729 14 150,692 412 203,056

5.3% 7.2% 12.6% 0.0% 74.2% 0.2% 100.0%

16.8% 102.8% 7.4% (57.1%) (7.0%) 24.3% 4.1%

121,654 57,526 69,704 0 419,878 10,700 679,462

17.9% 8.5% 10.3% 0.0% 61.8% 1.6% 100.0%

120,156 18,824 55,087 1 375,039 5,525 574,632

20.9% 3.3% 8.1% 0.0% 65.3% 1.0% 100.0%

1.2% 205.6% 26.5% (100.0%) 12.0% 93.7% 18.2%

245,387 212 20 28,566 274,185

89.5% 0.1% 0.0% 10.4% 100.0%

230,534 53 0 25,795 256,382

89.9% 0.0% 0.0% 10.1% 100.0%

6.4% 300.0% n/a 10.7% 6.9%

Hybrids, Electric and PHEV comparison

10,000 8,000 6,000 4,000 2,000

Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23

Electric

Hybrid

PHEV

It’s interesting to see how the electric vehicles did not actually take the parabolic route everyone expected, instead hybrid vehicles managed to stay on top of their peers albeit the gap is closing fast. We expect Hybrids and BEVs to continue to grow in popularity in the Australian market. We expect Hybrid to remain as the low emission drive chain of choice in CY24. Battery based vehicles now account for more than 8% of units sold, and in December they were 8.6%.

EV Uptake (Excluding HC) EVs PHEVs Total of above Total units sold Electric vehicles as a % of total

2022 33,410 5,937 39,347 1,034,070 3.8%

2023 87,217 11,212 98,429 1,165,008 8.4%

Dec-23 6,771 1,302 8,073 94,159 8.6%

Tesla and BYD deliveries are the main driver of the EV sales results. We understand BYD has strategically built up its stock levels in the market in an effort to build market share. There is potential to see some increased marketing and discounts to clear the stock and take top spot from Tesla in the EV sales push. BYD has strong potential, and the Brand overtook Tesla as the top-selling electric car seller worldwide, as they offer a more affordable option to own an EV and thanks to their dominance in the Chinese market. EV Analysis Tesla BYD Others EVs

2023 46,116 12,438 28,663 87,217

Allocation 52.9% 14.3% 32.9% 100.0%

2022 19,594 2,113 11,703 33,410

Allocation 58.6% 6.3% 35.0% 100.0%

Another interesting statistic about EV is that Tesla (+135% pcp) has increased below the EV market trend (+161.1%), but given their 2022 results, and being significantly ahead of legacy manufacturers, a slowing in growth was inevitable. EV Analysis Tesla BYD Others EVs

2023 46,116 12,438 28,663 87,217

Allocation 52.9% 14.3% 32.9% 100.0%

2022 19,594 2,113 11,703 33,410

Allocation 58.6% 6.3% 35.0% 100.0%

Variance pcp 135.4% 488.6% 144.9% 161.1%

Segmentation by Country of origin Japan, Thailand, and China continue to dominate. China now looks to challenge the Japanese for top position. Including all vehicles, China has produced 1 in 6 vehicles sold in Australia, and Thailand has produced 1 in 5. It is noted that despite the Chinese Brands, China also manufactures Tesla and Volvo. China’s government pushed its OEMs to ramp up production. Now with a declining domestic market, the Chinese OEMs are looking to export markets to maintain volumes and sales. Chinese based manufacturers have an immense cost base advantage over western and Japanese manufacturers, in particular when it comes to BEVs. We expect many new entrants to emerge in CY24 and the influx of affordable Chinese made cars in the Australian market will be impossible to ignore. With aggressive discounting, customers will pay even more attention to the price tag of their vehicles, and this is a dangerous game to play if you are competing with the Chinese. Pitcher Partner expects that the Chinese manufactured Brands will account for close to 20% of vehicles sold in Australia in 2024.

1 2 3 4 5

Total Market

2023

Allocation

2022

Allocation

Variance

Japan Thailand China Korea Germany

345,071 264,253 193,433 161,614 56,850

28.4% 21.7% 15.9% 13.3% 4.7%

330,061 245,608 122,845 159,244 41,931

30.5% 22.7% 11.4% 14.7% 3.9%

4.5% 7.6% 57.5% 1.5% 35.6%

Model analysis An interesting stat is that no vehicle in the top 10 by sales are passenger vehicles, and Toyota dominates the list with 3 models. The Ford Ranger 4X4 was the most sold vehicle of the year with 58,261 units sold, overtaking the Toyota Hilux 4X4, which came in second with 48,995 units sold. Bronze medal goes to the Toyota RAV4 with 29,627 units sold, a few hundred units better off than the MG ZS (29,258 units sold). Please note that Pitcher Partners decided not to amalgamate vehicles which have the 4X4 and 4X2 options, but we decided to keep them separate. 1 2 3 4 5 6 7 8 9 10

All vehicles - Top 10 Ford Ranger 4X4 Toyota Hilux 4X4 Toyota RAV4 MG ZS Tesla Model Y Isuzu Ute D-Max 4X4 Mitsubishi Outlander Mazda CX-5 Hyundai Tucson Toyota Prado

2023 58,261 48,995 29,627 29,258 28,769 25,443 24,263 23,083 21,224 20,710

2022 43,128 47,329 34,845 22,466 8,717 20,124 19,546 27,062 17,870 21,102

2023 v 2022 35.1% 3.5% (15.0%) 30.2% 230.0% 26.4% 24.1% (14.7%) 18.8% (1.9%)

Model and Segment Trends The passenger sector is led by the Hyundai i30 with 20,626 units sold (-2.6%), followed by the Toyota Corolla with 19,986 units sold (-21.0%), and the Tesla Model 3 with 17,347 units sold (+59.5%). Very tight competition in the SUV space. The Toyota RAV4 is the most sold SUV (29,627 units sold; +42.9% pcp), followed by the MG ZS with 29,258 units sold (+30.2%), and the Tesla Model Y with 28,769 units sold (+230.0%). The Ford Ranger, the Toyota Hilux and the Isuzu Ute D Max are top three players of the light commercial space. Isuzu Trucks still dominate the heavy commercial space with the N-Series being two of the most sold vehicles in the sector. They have the Light Duty in first place and in second place the Medium Duty.

1 2 3 4 5 6 7

Passenger Hyundai i30 Toyota Corolla Tesla Model 3 MG MG3 Kia Carnival Toyota Camry Mazda3

1 2 3 4 5 6 7

SUV Toyota RAV4 MG ZS Tesla Model Y Mitsubishi Outlander Mazda CX-5 Hyundai Tucson Toyota Prado

Top 7 passenger vehicles sold in 2023 2023 20,626 19,986 17,347 15,430 11,312 10,581 9,079

pcp (2.6%) (21.0%) 59.5% (4.6%) 40.5% 10.9% (5.8%)

Top 7 SUV vehicles sold in 2023 2023 29,627 29,258 28,769 24,263 23,083 21,224 20,710

pcp (15.0%) 30.2% 230.0% 24.1% (14.7%) 18.8% (1.9%)

1 2 3 4 5 6 7

Top 7 Light Commercials vehicles sold YTD Light Commercial 2023 Ford Ranger 4X4 58,261 Toyota Hilux 4X4 48,995 Isuzu Ute D-Max 4X4 25,443 Mazda BT-50 4X4 14,043 Mitsubishi Triton 4X4 13,732 Toyota Hilux 4X2 12,116 Toyota Landcruiser PU/CC 11,414

pcp 35.1% 3.5% 26.4% 33.3% (42.7%) (29.0%) 0.2%

1 2 3 4 5 6 7

Top 7 Heavy Commercials vehicles sold YTD Heavy Commercial Isuzu N-Series (LD) 7,185 Isuzu N-Series (MD) 4,080 LDV Deliver 9 / eDeliver 9 3,865 Kenworth 3,655 Volvo Truck (HD) 3,476 Mercedes-Benz Sprinter 3,113 Hino (LD) 2,928

pcp (6.2%) 12.1% 30.3% 21.7% 36.9% 15.9% 3.8%

OEMS trends •

Toyota had a start rough of the year but finished once again as the market leader (21st year in a row) with a market share of 17.7%, behind the usual 20% the brand achieves. Toyota seemed to be the only brand continue to have supply chain issues throughout CY23, with major production and shipping bottlenecks in the first half of the year, but steadily recovered in the back half of the year. In a significant market shift, the Ford Ranger ended the dominance of the Toyota Hilux as the most sold vehicle nationally after 7 years of dominance. In 2023 the Brand sold 215,240 units (down 6.8% compared to CY22) and managed to have five models inside the overall top 20 models sold in CY23; namely the Hilux 4X4 in second place (48,995 units sold), the RAV4 in third place (29,627 units sold), the Prado in tenth place (20,710 units sold), the Corolla in 12th place (19,986 units sold) and the Landcruiser Wagon (15,035 units sold). Toyota is expecting shorter wait times for 2024, where most models will have a wait period of 4-6 months by mid-2024 (Sean Hanley, Toyota Australia’s VP of sales and marketing, to CarExpert). He specifically noted the RAV4 Hybrid, which has had wait times of up to 24 months during the pandemic and is still sitting at around 12 months, will also be down to a 4-6 month wait by mid-year. Mr Hanley says it will have an “incredibly strong supply” of the mid-sized hybrid SUV in the first quarter.

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Mazda finished in second place again. Mazda sold 100,008 units (+4.5% compared to CY22) and its market share position was 8.2% (-7.1% compared to CY22). It is the first time since 2018 that Mazda surpassed 100,000 units. The CX-5 kept its spot in the top 10 vehicles sold with 23,083 units sold. Also continuing the momentum is the CX-3 with 15,776 units sold (+32.5% YoY).

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Ford finished in 3rd place, and the American OEM had a fantastic year. Ford units sold were 87,800 (+31.8% YoY). Ford sales were driven by growing supply available stock, as well as the market leader Ranger 4x4 performance (58,261 units sold, +35.1% YoY). Solid demand also for the Everest which sold 15,071 units (+46.1% YoY). Ranger contributed 3 out of 4 units sold by Ford in CY23. For perspective, the Ranger has sold the same number of vehicles as the entire Mitsubishi line up. It is actually the first time a Ford vehicle is the most sold one nationally in the last 30 years.

Ford Units Sold in 2023 2.7% 4.8% 3.2%

Ford Ranger 4X4

5.8%

Ford Everest Ford Ranger 4X2

17.2%

Ford Transit Custom 66.4%

Ford Escape Others

•

Mitsubishi finished CY23 with a decline in sales volume. CY23 market share of the Japanese OEM is down 26.7% compared to CY22 with 63,511 units sold (-17.5%). It should be noted, there was a strong performance of the Outlander (24,623 units sold for the year; + 24.1% YoY), which was the seventh most sold vehicle of the year.

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MG was a mixed bag for CY23. December units sold were 3,834 (-26.2% YoY), while yearly units are up 17.7%. MG was kind of unlucky with the ZS as they missed the number one spot among SUV sales by just a few hundred units in favour of the Toyota RAV4. The MG3 lost buyer demand in CY23, and yearly sales are down 4.6%. It will be interesting to see how the MG4 and the MG5 perform in CY24 after selling north of 500 units for the month of December.

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Tesla has been sending mixed signals in CY23. Units sold for the month were 2,192 (-3.3% YoY) and yearly units were 46,116 (+135.4% YoY). CY22 numbers were supressed due to a shortage in supply, and the YoY increase doesn’t show the real picture. An interesting comparison, Tesla for the month of December 23 sold less units than Isuzu Ute, Volkswagen, and Nissan, and just 100 units more than Mercedes. Will the last 5 months trend come back to a sporadic supply or will the 4,000 average units a month become the new norm? Tesla’s market share among pure EVs is at the lowest point in the last 18 months – currently only at 32.4%. It is clear Tesla is experiencing competition in the Australian EV market for the first time, being upended by its Chinese competition. Tesla presence in the EV space 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0

90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

Tesla Units sold

Tesla Market Share

Dec-23

Oct-23

Nov-23

Sep-23

Aug-23

Jul-23

Jun-23

May-23

Apr-23

Mar-23

Feb-23

Jan-23

Dec-22

Oct-22

Nov-22

Sep-22

Jul-22

Aug-22

Jun-22

May-22

Apr-22

Mar-22

Averaging ~4,000 units / month

The Brand may be able to rely on the 2024 New Model 3 for CY24, which had been launched in Australia at the end of December. Will the re-styling and the noise cancellation help the brand drive up demand for the vehicle? In positive news after four years of waiting, the Cybertruck deliveries began in November in the United States. However, the electric pick-up is not currently planned for sale in Australia, or manufacture in right-hand drive – Drive.com.au has commented. •

Volkswagen, what a year! The German OEM sold 43,821 units (up 41.6% YoY). The Brand improved their market share to 3.6%, which is up 25.9% compared to last year. VW saw the results of the refreshed line-up, with the T-Roc (8,943 units sold; + 146.6% YoY), the Tiguan (7,298 units sold; +174.6%). Also, strong performance of the Amarok 4X4 (6,626 units sold; +46.8% YoY) and the T-Cross (5,762 units sold; +12.0%).

•

Mercedes Benz sales volumes were in steep decline in CY23. We can only speculate on the drivers of the decline in performance, was it the change to the agency sales model or the model line-up itself? The facts are that MB finished the year in 15th place by units sold. The market share for the German OEM has also dropped from 2.5% to 2.0% (down 19.4%) and units sold for the year were down by 9.3% to 24,315. BMW outsold Mercedes for 2023. This hasn’t happened in over a decade – last time we witnessed this it was 2011. BMW has outperformed Mercedes primarily because MB performed so poorly, not because BMW itself excelled. Check the chart here below – even if Mercedes had performed 10% below the market trend, it would have still done better than BMW in CY23. However, Mercedes ended up underperforming the market by 21.8%, making it to BMW. For MB, also understand that many of the counted sales in CY23 were demonstrators that remain unsold. This could prove to be a very difficult problem for MB to solve in CY24. Mercedes Benz have won the court case against the dealers, but like a S-Class on a narrow innercity road, it’s hard to see a U-turn occurring. Mercedes and BMW Performance Comparison ('000s) 35.0 30.0 25.0 20.0 15.0 10.0

32.0

29.5

28.3

23.3

23.5

24.9

2019

2020

2021

26.8 22.7

24.3 26.2

27.0

5.0 0.0 Mercedes Mercedes - 10% Below Market Brand BMW Mercedes Mercedes - Market Adjusted Mercedes - 10% Below Market Market

2022

2023 Units Sold 26,184 24,315 30,040 27,036 1,216,780

2023

BMW Mercedes - Market Adjusted YoY Performance 15.4% -9.3% 12.5% 11.3% 12.5%

30.0

•

Volvo’s demand was not as strong as expected. We understand the Swedish OEM is currently overstocked, and deliveries for the year were 11,128 (+3.9% YoY). The brand has recently run a demonstrator clearance, as well as discounting the S60 and the V60 models to drive up demand. Volvo also dropped fixed pricing on their electric line up. Some dealers have significant overstocking issues that will need to be addressed with meaningful marketing and potentially even discounting or sub-vented financing.

2023 Wrap-up Overall, units sold for the year were up 12.5% for the Australian market for a record-breaking year. It is a fantastic achievement by the industry, but let’s pull out the crystal ball. How many units will CY24 deliver? The key factors in determining how CY24 will shape up are: Immigration Australia is expecting to welcome close to 300,000 new migrants from overseas this year, net of departures. Many of these are on skilled migration visa’s, with readily disposable income and a need for a car. This level of migration inflows to Australia is expected to continue with Australia forecast to hit 30 million by 2032. Australian Population (#m) 31.0 30.0 29.0 28.0

27.0

27.4

27.8

28.2

28.6

28.9

29.3

29.7

30.1

30.4

30.8

27.0 26.0 25.0 24.0 FY24

FY25

FY26

FY27

FY28

FY29

FY30

FY31

FY32

FY33

FY34

Source: Australian Government Centre for Population “Budget 2023-24: National Population Projections, 2022-23 to 2033-34”

Fleet customers It is time to show fleet department some love. Pitcher Partners analysis of buyer types estimates somewhere between 200,000 and 350,000 missing fleet sales during the stock shortages (refer table below). As Fleet Management Organisations (FMO’s) can now turnover their fleet, expect privately bought vehicles to decrease.

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Fleet Sales 522,805 501,651 540,623 522,049 496,553 516,454 573,486 594,895 596,213 548,405 436,906 467,268 453,575 534,711

Total Market 1,006,960 980,176 1,080,982 1,104,531 1,081,899 1,123,224 1,145,165 1,152,267 1,111,685 1,024,898 882,401 1,006,510 1,034,070 1,165,008

Fleet % 51.9% 51.2% 50.0% 47.3% 45.9% 46.0% 50.1% 51.6% 53.6% 53.5% 49.5% 46.4% 43.9% 45.9%

Fleet Hole Analysis 10-year average Hist. Deviance Fleet Average from Norm hole

50.1%

Hist. Average

3-year average Deviance from Norm

Fleet hole

52.9% 0.6% 3.7% 6.2% 4.2% Total

5,264 37,092 64,596 49,072 156,024

3.4% 6.5% 9.1% 7.0% Total

30,084 65,404 93,682 81,842 271,012

As the above table shows, fleets have historically accounted for approximately 50% of total unit volume since 2010. Pitcher Partners calculated that the average percentage of the market that fleet vehicles account for over the last 10 years is 50.1%, while in the last 3 years is 52.9%. Considering that since 2020, fleets account for ~45% of total units, this implies that focus has shifted from fleet sales, in favour of private consumers as they are the more profitable option. We estimate that there are about 150,000 to 270,000 units unsold to fleets, which has resulted in an ageing fleet. Once you factor in Government incentives to drive EV adoption through the Electric Car Discount Bill the figures Pitcher Partners have quoted are higher. The Bill has resulted in the increase in novated leases of electric vehicles to take advantage of FBT exemptions. As these purchasers were likely to be ‘private’ if they were removed the fleet unit volume as a percentage of markets would be considerably lower. The bottom line is that fleet sales have not maintained the growth units sold have been on, and as we notice consistency in the 50% mark, we would expect this ratio to convert back to the mean as soon as next year, as demand from privates starts declining. Interest Rates Interest rates both personal and floorplan will set the tone in CY24. With the average new car at $50,000 dealers will be paying over $300 a month in floorplan interest costs alone. Strategic stock management will be back ‘en-vogue’ and turning those vehicles over quickly and avoiding slow moving stock will be a key to success. On a personal front, dealerships will be the sources of the cheapest finance in the market. We are already seeing finance deals return to the market to boost volumes. This is a trend we expect to continue in 2024 and maybe even the trifecta (finance, factory bonus & free servicing). Cost of Living Pressures Interest rates are not the only item households have had to struggle with skyrocketing. Cost of living pressure from a high inflationary environment is pushing the price of pretty much everything up. This will result in discounting, choice of model or variant reduction and greater need for a strong sales process to convert as many inquiries as possible to sales. Wrap-up Overall, we predict another year of 1.2million units sold in CY24, assuming that there is not a significant economic shock (war, recession, etc). Unit throughput will continue to be near all-time highs; however, profitability will be constrained as margins contract and the market competition increases with waning private demand.

Making business personal Steven Bragg Partner | Motor Industry Services p. +61 2 9228 2598 m. +61 437 445 200 steven.bragg@pitcher.com.au

John Gavljak Partner | Business Advisory and Assurance p. +61 2 8236 7759 m. +61 499 773 881 john.gavljak@pitcher.com.au

Pitcher Partners has the resources and depth of expertise of a major firm, but with a boutique firm feel. We give our clients the highest level of personal service and attention. That’s the difference. Pitcher Partners is an association of independent accounting and business advisory firms located in Adelaide, Brisbane, Melbourne, Newcastle, Perth and Sydney. We have a strong reputation for providing personal service and quality commercial advice to our clients across a broad range of industries. We specialise in working with middle market businesses in Australia, including privately owned, foreign controlled, government owned and not-for-profits. Our clients require high technical standards, matched with a personal understanding and involvement in their affairs. Each Pitcher Partners firm is also an independent member of Baker Tilly International, one of the world’s leading networks of independently owned and managed accountancy and business advisory firms. Our strong relationship with other Baker Tilly International member firms has allowed us to open many doors across borders for our clients.

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