Monday 18 December 2017

'The demand for cars just virtually dried up - there was a bloodbath for every distributor'

From the nightmare of the credit crunch, the Irish motoring trade has roared back into life. Nissan Ireland chief executive James McCarthy talks about the pain of the past - and the trends of the future

James McCarthy, CEO Nissan
James McCarthy, CEO Nissan
Gavin McLoughlin

Gavin McLoughlin

Do you have a vision of reclining with a glass of champagne as a robot drives you to work? It's not going to happen, according to the man who runs Nissan's distribution network here. "To my mind you'll never get to the point where you're sitting in the car working on your iPad and the car is just driving you along.

"The most important component of the car is the person who's sitting in the driver's seat. That's the person who'll get the penalty points."

James McCarthy spent 20 years working in corporate finance before joining Nissan as chief executive. He'd worked closely with his predecessor to help the company survive the recession.

"The credit crunch really impacted us, where a lot of our banking lines just disappeared. We had a very good relationship with Permanent TSB Finance and they effectively exited the car finance business, so that left a big gap in our lives.

"So we had to do a significant amount of work re-engineering our business model to be able to manage the fallout of the credit crunch and I suppose the fact that I was working closely with Gerard at the time, he asked me would I like to succeed him, but as I said I think it was largely a function of having the finance skills that were probably the key at the time.

"I'd say if it was happening today he probably wouldn't have looked in my direction at all, so I was very fortunate to be approached on that basis."

Mr McCarthy's first task was to restructure Nissan's business model to help it adjust to a new market reality.

It wasn't just that the demand for cars had fallen - people had changed the way they were buying cars as well.

"Historically people used to go into the dealer showroom, make five or six showroom visits before they decided what they're going to buy. Now all that research is being done online…so when people go into a dealership they're armed with information and they're probably also armed with a decision. And they just want to have that decision pretty much confirmed.

"However, the fact that they're going through that research is creating data for us and creating information for us that we should be using to manage our business more smartly.

"So that should be assisting us in purchasing decisions, our promotional activity, and if they're not interested in something g that you think you'd like them to be interested in, well do you run a promotion? Do you increase an advertising campaign?

"And where it really helps you then is it reduces the amount of guesswork associated with the cars you should be ordering.

"So when we're ordering stock we know it's because there's the interest for that, and that allows us carry less stock, it allows us be more efficient, it reduces our requirement to have big funding lines."

This year Mr McCarthy expects Nissan to sell close to 11,000 new cars here, up from 8,000 in 2014 and 6,000 in 2013. That'll be enough for a turnover of €180m-€200m.

The industry in general is seeing the signs of a recovery, but the memories of a crash that Mr McCarthy says precipitated a "bloodbath" remain.

"In the motor industry the crash happened in 2009, but we saw it coming in 2008. In the preceding 10 years the average number of new cars sold in Ireland was around 170,000-175,000. In 2000, for example, there was 230,000 new cars sold.

"You had businesses that were configured to deal with those types of volumes.

"In 2009 it was 57,000 cars, and I'd say half of those cars were almost given away. If it was a true 57,000 that would be a good thing but in fact it wasn't even a true 57,000.

"The problem that all of us had is that we had ordered stock and we had to move that stock. You can't give the stock back.

"We had to export cars and take a loss on them, the other kind of element of the perfect storm that happened there was that the VRT rates changed and that had a dramatic effect on the saleability of higher-end cars, SUVs suddenly became unsellable.

"The demand for cars just virtually dried up, but…the demand for the SUV-type car completely dried up. And then if you had stock either in your network or in your compound, you had to find ways of moving them on. So there was a bloodbath for every distributor who had to move those cars on, and we were certainly one of them.

"So what we all did as best we could was kind of work our way through that stock, and that took a couple of years for everybody to deal with that. During that period we all suffered losses as we discounted cars and moved them on - it was a painful time."

Mr McCarthy says it was the support of the Kuwaiti Al-Babtain family, who own both Nissan Ireland and the Windsor Motor Group retailers, that helped Nissan get through.

"Their belief that Ireland was going to get out of this was a lot stronger than I think people who were living in Ireland at the time.

"They just said 'Listen, we've been involved in the company for 35 years, we've seen Ireland go through tough times before, and we believe this is cyclical, you'll come out of it.

"They put their money where their mouths were, they weren't just saying idle words.

Now the focus is turning to the future. Nissan makes the 'Leaf' electric car and hopes to sell 400 of those in Ireland next year, having sold 200 last year.

"Nissan are committed to the electric vehicle as the way forward - in Ireland the electric vehicle infrastructure is probably the best in Europe

"The big issue that people have is what they call range anxiety, how far does the car go between charges?

"An electric vehicle's range is about 190 kilometres but obviously that varies depending on road conditions, weather conditions, traffic conditions.

"Certainly 120 to 170 kilometres is what can reasonably be expected all the time.

"They are a really compelling proposition for those for whom it suits. It doesn't suit everybody, if your daily commute is up and down from Kilkenny every day, forget about it. But if your daily commute is a run from the suburbs into town and back home, it's perfect.

"It'll be interesting to see how it plays out, the battlefield really isn't Ireland for what happens in electric vehicles but the fundamental proposition from a financial perspective is absolutely compelling."

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