Australia: Moore Stephens Auto Winter Newsletter 2014

In this, the Winter issue of the Moore Stephens Automotive Newsletter we are pleased to inform you of the key findings from our recent nation wide 'Automotive Fraud Survey'. The fascinating survey highlights the prevalence of fraud within the industry and was a highlight of the AADA conference held in July at the Gold Coast.

New vehicle sales for the June quarter, indicate a continued decline, despite this, Mazda and Toyota remain high on the 'top selling list' .

Please contact your local Moore Stephens Automotive representative if you would like further information or detail in regard to this newsletter.

Fraud "The Enemy Within"

Moore Stephens recently conducted an Australian Automotive Retail fraud survey which was the first survey of its kind undertaken in Australia.

The objective of the survey was to understand the type of fraud being committed in dealerships, by whom, the size, financial consequences and the processes put in place to prevent fraudulent behavior. The results have generated significant discussion which suggests that fraud is a topic that is of significant interest to automotive retailers.

Some of the key findings from the survey were:

• 1 in 3 frauds committed exceeded $100,000. To put this in context, the average metropolitan dealership with annual sales revenue of $80m at a net margin of 2.5% must generate an additional $4m in sales to compensate for the fraud;
• 57% involved a departmental manager;
• Greed or gambling / addiction were the main motivating factors for the fraudulent activity to occur;
• 95% of dealers have experienced fraud in the last 5 years.
• Fraud is most prevalent in the used car department, with 36% of frauds occurring in this department;
• 96% of perpetrators were internal to the business;
• 87% of fraud was committed by men; and
• 76% involved one person

In response to a fraud occurring, 53% of automotive retailers increased supervision while 52% also undertook additional audits. This suggests that almost half the respondents implemented processes to mitigate future fraud. Preventing fraud should be paramount and is more important than detecting or dealing with it. Setting the right tone from the top and having an appropriate culture creates an environment which assists keeping people honest and accountable. Automotive retailers should also ensure that internal controls are robust and prevent the opportunity for dishonest staff to perpetrate fraud. We have developed automotive industry specific review programs and exception reporting techniques which assist dealers in identifying weaknesses in internal control systems.

To arrange a no obligation meeting to discuss your specific circumstances, please contact your local Moore Stephens Automotive representative.

A summary of the survey findings is available for your reference - Click here to download.

Key findings & Update from the 2014 AADA Conference

Moore Stephens had a delegation of nine partners and staff attend the AADA convention held on the Gold Coast at RACV Royal Pines resort from Thursday the 10th to Saturday the 12th July. The convention attracted over 450 delegates, including automotive retailers and suppliers to the motor industry. Moore Stephens presented a work shop session covering Automotive Retail Fraud The Enemy Within; this presentation marks the third year in a row that Moore Stephens have presented as specialists in the automotive industry.

Ian Field, the newly appointed AADA Chairman welcomed delegates to the convention, which was followed by an exceptional and positive keynote address by Veronica Johns, President and CEO at Fiat Chrysler Group. Veronica's presentation illustrated the benefits of a leader understanding the following:

• Their strengths and weaknesses;
• The benefits of strong and positive staff relationships;
• The benefits of positive staff engagement; and
• Understanding it is "not about me"

Veronica detailed the tangible business benefits to be derived by understanding and fostering a positive working environment, focussing and elaborating on the points above. "It's not all about me" was Veronica's mantra.

Patrick Tessier, interim AADA CEO addressed the convention delegates regarding the new AADA organisation. It is a not for profit, incorporated body owned and run by automotive retailers. Patrick stated twenty five percent of all new car franchisees are members of the new AADA which represent fifty percent of all national sales volume. Members' of the current AADA board are automotive retailers which include a representative from each Australian state and territory. The AADA exists to support automotive retailers and give them a voice to, amongst other things, address the following:

• Lobby government on issues (i.e. LCT and GST legislation);
• ATO compliance obligations (i.e. practical issues arising from legislation changes);
• Legislation and policy change (i.e. ASIC review of credit providers);
• Issue practical documentation (i.e. health checks of dealerships); and
• Franchise agreement assistance.

The overarching message from Patrick and Ian was that the new AADA and its board are here to support and assist all dealers. It was strongly encouraging all dealers to become members so it has the backing and resources to effectively represent dealers collectively.

The AADA board were presented for a question and answer session hosted by Ian Leslie. The issues discussed included:

• GST and various taxes imposed on automotive retailers;
• Used car imports;
• Franchisor incentive programs;
• The "right to repair";
• Digital investment versus bricks and mortar investment and the ideal model of a dealership;
• Franchise agreements; and
• The new AADA operations and progress to date.

Sessions were also presented by Tony Weber, Ron Hardaker and Evan Stents providing a summary on current significant industry issues.

Automotive retailer solution workshops were delivered and according to Patrick Tessier the two standout sessions of the conference were presented in these sessions. They were Fraud The Enemy Within by John Gavljak and Rami Eltchelebi of Moore Stephens and "Fixed Operations – Turns Your Fixed Ops Into A Goldmine" by Alan Bergman. The fraud session presented the insightful results of the first ever survey into fraud within the automotive industry as well as informative discussion on internal controls and systems. This discussion incorporated recommendations on specific tasks, automotive retailers must undertake in the event of fraud, and things which can be done to identify potential fraud and limit exposure.

Paul Cummings delivered plenary sessions on Friday covering "Sustaining Excellence: A successful dealership is a well-planned journey." The highlights of the sessions were Living as a Leader and Premium Customer Care. Paul presented some thought provoking ideas and practical tools for automotive retailers to utilise.

Saturday started with special guest Dr Giavanni Pagno, the founding president of Europa Automotive Institute. Dr Pagno presented his thoughts on the future of the Australian Automotive Industry, and questioned what is probable, possible and preferred.

Other presentations included Frank Romano on "Customer Service" and Avoiding Legal Obstacles and Keeping Your Profit by Maria Townsend

The closing key note address was delivered by former Prime Minister John Howard. As expected, Mr Howard spoke exceptionally well and discussed leadership and values at length. The key message from Mr Howard's presentation included the following points, for which a leader should understand:

• Stand for something;
• Have strong values;
• Foster good attitudes and goals;
• Focus on relationships between leaders and immediate leads;
• Accept that leaders will make mistakes, however they must get the big things right;
• Always trust your instincts / trust your judgement; and
• Always understand your audience.

In conclusion, the convention provided a range of thought provoking sessions incorporating insights and practical information, addressing current industry issues. The new look AADA left the impression they are here to support and assist automotive retailers, with dedication to the automotive retail issues at hand. Moore Stephens has advised AADA on a range of issues and will continue to provide assistance to AADA and other automotive industry bodies.

For more information about AADA and the convention, please visit: http://aadaconvention.com.au/

June 2014 Quarter Sales Update

New car sales for the six months to 30 June 2014 were 559,951 a decrease of 2.4% in comparison with the 573,711 cars sold in the corresponding six months of 2013. Approximately 58.9% of the vehicle sales to 30 June 2014 were in New South Wales and Victoria.

The Mazda 3 was the highest selling new car, overtaking the Toyota Corolla with 22,524 units sold to 30 June 2014. The Corolla continued to perform strongly, having sold 22,166 units. The Toyota Hilux rounds out the top 3 selling vehicles, with 19,160 units sold to 30 June 2014.

The domestic manufacturers have seen a 2.5% reduction in market share since 30 June 2013. Only 51,286 of the total 559,951 vehicles sold in Australia in the first half of 2014 were produced domestically, amounting to 9.2% of new vehicle sales in Australia. This trend is expected to continue, with Toyota following Ford and Holden in the decision to cease manufacturing in Australia by 2017.

Despite the decision to cease local production, Toyota continues to hold the largest market share, with 18.1% followed by Holden and Mazda.

The SUV segment continues to experience growth, with a 1.6% increase in market share since June 2013. Toyota, Nissan and Jeep account for the top 3 selling SUV brands at 30 June 2014.

Top Manufacturers - Market Share

Top Manufacturers - Market Share

Top 10 Makes - June YTD 2014 v June YTD 2013

Going forward, we expect to see a reduction in sales of locally manufactured vehicles as Holden, Toyota and Ford commence their wind up of Australian operations. Overall, the new car volumes for the calendar year are expected to remain constant.

Attachments

A summary of the 2014 Moore Stephens Fraud Survey

This publication is issued by Moore Stephens Australia Pty Limited ACN 062 181 846 (Moore Stephens Australia) exclusively for the general information of clients and staff of Moore Stephens Australia and the clients and staff of all affiliated independent accounting firms (and their related service entities) licensed to operate under the name Moore Stephens within Australia (Australian Member). The material contained in this publication is in the nature of general comment and information only and is not advice. The material should not be relied upon. Moore Stephens Australia, any Australian Member, any related entity of those persons, or any of their officers employees or representatives, will not be liable for any loss or damage arising out of or in connection with the material contained in this publication. Copyright © 2014 Moore Stephens Australia Pty Limited. All rights reserved.