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Hot cars go cold in chilly climate

Soldiering on: HSV's W427 and FPV's GT keep sales ticking over in distressed sales climate.

HSV, FPV curb production as sales go off the boil

10 Feb 2009

HOLDEN Special Vehicles and Ford Performance Vehicles have not been immune from the global downturn, being forced to reduce their workforces and cut production, despite recording near-record sales in 2008.

The two local but foreign-owned hot-car outfits say they are maintaining their research and development spending levels in the face of declining fortunes, but both are reviewing future model programs outside of their mainstream offerings.

FPV general manager Rod Barrett told GoAuto that the slow-selling Territory-based FX6 would be reviewed in coming months, ahead of the coming facelift, while the much talked-about GTHO revival had been further delayed.

And HSV managing director Phil Harding said that while side projects had been put on hold, work continued on LPG engineering.

He said a decision would be made by Easter on a business case for diesel-engined models, which are considered vital to develop exports to European markets.

HSV initiated a rare retail action late last year, with prices slashed by between $6000 and $14,000 to clear an unexpected stockpile, which dramatically boosted sales in December and cut its dealer stocks from a high of 1200 cars to fewer than 600.

The company did not build any cars in January (apart from a handful of W427s) and its daily build rate for at least the next few months will be half that of only six months ago.

FPV has also cut production by about half, but did not need to discount its cars to reduce stock levels, which have been pegged back from 650 cars to fewer than 350.

One unexpected result of HSV’s big sales drive in December was a January hangover that led to a rare sales victory by FPV, with 124 sales versus 117 for the first month of the year.

But HSV remains the special-vehicle king in Australia, selling 4778 vehicles in 2008 (444 fewer than the previous year, but still 724 ahead of the brand’s next-best year) while FPV racked up 2035 sales, which is only 92 units fewer than the previous year and 109 down on its record year in 2006.

Neither company is crowing about sales, though, as they face difficult trading conditions and reflect on having to reduce their respective workforces.

While FPV has been forced to lay-off 12 of its 70 workers, HSV has reduced its staff by 15 people (out of 200) and told all its contract workers – which accounted for 60 per cent of its production workforce only six months ago – there will be no work for them until at least June.

HSV resumed production last week after an extended Christmas break and is now building only 15-20 cars a day (about 50 per cent of capacity) while FPV is producing 10 cars a day (against a capacity of 18).

Only six months ago, both companies were running at full capacity to meet record demand.

Both Mr Barrett and Mr Harding were reluctant to predict where the market would go in 2009. They hoped that the niche nature of their segment would help them in the drastically contracting overall market, but admit they would be ecstatic to get close to their 2008 results.

HSV sold 1044 ClubSport R8s last year, a record 956 Maloo utes, 906 GTS sedans, 359 Senator Signatures, 267 Grange, 134 Vauxhall-built VXRs, 64 Tourer wagons and 90 W427s.

FPV’s 2008 sales total consisted of 697 GTs, 174 GTPs, 81 GTEs, 537 F6 sedans, 154 F6 Utes, and 208 Pursuit and Super Pursuit utes combined.

Mr Barrett admitted that the numbers for the Territory-based F6X – 178 sales, well short of the 600 projected when the company’s first non-Falcon product was launched 12 months ago – made it hard to justify the investment required to do a facelift of the stand-alone vehicle.

“We haven’t sold as many of the F6X as we would have liked,” said Mr Barrett from his Campbellfield office.

Although he cautiously said the SUV will continue, he added that “we’ll have to manage our expectations on what it does for us” and admitted that the program will be reviewed when the donor Territory is facelifted in about June.

“Mid-year I think we’d have another look at where we go with it. I would like to think (sales) would improve, but it is the second most expensive car in our fleet, so it may be the one that takes the brunt more than anything else.

“This year FPV is about prioritising and consolidating. And I would not be the only person in the automotive industry saying those two words.” Mr Barrett said that a revival of the GTHO nameplate after more than three decades has not progressed past his own desk and was definitely on the backburner.

“It wouldn’t be as close as it was 18 months ago when you first spoke to me. 18 months ago, when I first started (at FPV), things were different. There were so many other things that came in front of it – we had to get the FG up and running, there were eight cars there, the F6X … “The GTHO was always, and still is, a long-term project. I’d still love to do it (but) it’s a young kid’s dream – and he turns 49 this year.”

 center imageLeft: HSV ClubSport R8

While FPV is still planning to produce a Focus-based model when local production of the small car begins in 2011, this year it will concentrate on its existing models and weathering the automotive storm.

“We are very niche,” said Mr Barrett of his optimism selling premium high-performance large cars in the tough current environment.

“It might be tough to sell a six-cylinder Commodore, for example, but there’s still that niche out there of people wanting to buy a high-performance car, and petrol’s not expensive any more… “Don’t get me wrong, it was a tough year, but we didn’t give our cars away at the end of the year,” he said in reference to HSV’s big end-of-year sale.

After HSV sales dropped from an average 450 a month to 250 when the government increased the luxury car tax, HSV slashed prices across its full range (apart from the new Tourer wagon) and consequently sold a massive 853 cars in December.

“Other manufacturers that are in close competition with us have been doing some hefty, hefty, hefty discounts – and we’re not going to compete with them,” said Mr Barrett.

“We’ve got a good strategy of producing a set number of cars and we’ll continue to do that. We don’t want to flood the market.

“When you do that sort of thing (discounting), you’re not only flooding the market … what does it do (to resale value)? What does it do also to your customer loyalty? It must be killing residuals. We’re trying to protect that.

“The way the world is at the moment, cars go down in value, particularly high-performance cars and luxury cars, but I’m not going to go out there ‘plagiarising’ the market sort of thing – that’s just crazy.

“I can’t tell a dealer what to sell a car at, I can only give recommended retail prices, but what we can do is not offer massive discounts. We’ve just reduced our production down a fair bit, so we’re not flooding the market with cars that can’t be sold.

“We only build to order from dealers – they order it, we build it, we send it out and they put it on the lot.” Of course, HSV defends its retail action strategy, saying it was a necessary short-term move to clear dealer stocks that had risen unexpectedly because of the post-LCT downturn.

Mr Harding conceded that customers who bought cars at full retail may not be happy, but said it was no different to the many other manufacturers that have reduced prices to clear stock.

“We don’t need telling what’s good for our brand and what’s not,” said Mr Harding of his rival.

“I think the short, sharp treatment was the best one. I think if you run bonuses for too long then you end up with an accepted price point that you can never get away from. We don’t often do (sales), but you’ve got to do it at times and then you’ve got to pull away from it, which is what we’ve done.

“The day they changed the luxury car tax was a day that sales started to soften (but) I can’t stop the (production) pipeline in a day.

“You get that (LCT) changing, you get people talking about a financial crisis – compared to the UK and Europe, there isn’t one here, but everyone thinks there is – talk of credit squeezes, talk of dealers who have to refinance their businesses because of GMAC and GE pulling out, all of that created a condition where we had to respond, so the December campaign was really to correct that.

“We’ve got 600 (cars in stock) at the beginning of the year. With the actions we’ve taken in January and February, we’ll be down to 500. We chose not to build any cars in January just to get the stock levels under control. We’re getting dealers now screaming at us because they haven’t got enough cars, so it’s fixed.

“We have planned the year in four quarters. We’re going to make very few cars in the first quarter and then slowly take each quarter as it comes so that we can properly manage supply.

“If we get a good (sales) number this year, fine, but I’m not shooting for big numbers. I’m shooting to keep the supply and demand under control – whatever sales are will be a result of that.

“In line with that, we’ve battened down the hatches. We’ve taken more than 15 per cent out of our overheads in the last couple of months. From August to December last year we got rid of 15 heads.

“It’s easy with record sales for companies to become fat, dumb and happy, and you’ve always got to resist that temptation. HSV has been very miserly when it comes to spending money internally and hiring staff. We’ve always been a fairly tight ship, but there’s always places where you can find it.

“We know there’s demand for the product, but not to the same degree as our launch year (for the VE-based range in 2007) because the market conditions aren’t right yet.

“I would be ecstatic if I met 2008 figures. I’m capable of making 2008 figures because, if the demand is there, we can build more cars (but) this business will survive on a much smaller volume of cars if we control our costs.

“You would be extremely rich if you could predict what was going to happen in the second half of this year. What we are trying to do is not supply one more car than necessary, monitor supply and demand slowly, keep that stock control under control so it’s around 400-600 cars.

“If the market picks up, it picks up. But does anyone else know what it is? I don’t think they do. It’s almost impossible. For 20 years HSV has pretty well known what it’s going to do and how it’s going to grow, but this is one of those years where we have to measure our business against what is happening in the marketplace more than ever before.” HSV’s export business has also been affected by the global recession, with New Zealand down 21.2 per cent to 490 cars last year and the UK down 12.6 per cent to 257. Mr Harding said the UK market is “absolutely shot (because) they’ve had stuff go wrong that Australia hasn’t had – they’ve had banks fall over”.

Although Middle East sales rose some 46.0 per cent in 2008 to 219 units, he said that the recession was also starting to have the same impact there.

Plans to expand sales in Europe are dependent on producing diesel variants because they account for three-quarters of sales across the Continent and the growing new market of Russia.

“It may never happen – it’s a business decision we’ve yet to take,” said Mr Harding. “We’ll probably make a decision on that by Easter.

“HSV is very product-oriented and I believe in these times if you do anything to skimp on your R&D then you’re not preparing yourself right for the future. Our engineering (department) is extremely busy and, while I’m pulling back the pennies on everything in the business, we’re not skimping there.

“Diesel is a massive investment, so it’s a big swallow-hard technology decision with a lot of finance in it, and that’s difficult at the moment with the way the market is trending. It’s a tough call. That’s why we’re not making it today.

“Even LPG is a tough one. For our relatively small company, completing that will demand $1 million of investment. Is that going to work for us? I take the view that, even if it didn’t work for you this year, it is one of those things that you are going to need in the cupboard to pull out in two or three years’ time.

“I don’t take that view with the diesel because the numbers are much higher in terms of the up-front investment.”

Read more:

HSV slashes W427 production

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