Plummet in used car sales came out of nowhere - AAA Auto chief Denny

Anthony James Denny, chief executive of listed used car dealer AAA Auto said it was unforeseeable that the used car market of Central and Eastern Europe would collapse in the fourth quarter of 2007. A proof to that, he added, was that his own family invested more than EUR 1 million into AAA Auto shares during the IPO.

The market shrunk by a massive 20% and Denny believes the predicaments could last as long as 6 to 18 months. He noted, however, that AAA Auto would still be able to make profit in the longer term. The question of when exactly remains unanswered. In an interview with Hungarian business daily Napi Gazdaság Denny also denied to comment whether he plans profit already for this year.

Out of the blue

While AAA Auto suffered some delays in branch openings already in the third quarter of last year, “everything seemed to be fine" and so the sharp fall in used car sales in the fourth quarter was a cold shower for the company, Denny said.

“We faced the toughest problem in November when our sales plummeted 20% on our key markets and the decrease continued in December as well both in volume and value terms," Denny told the paper.

“According to our calculations, we can be profitable even at a 20% revenue loss. Of course, it would be best if the market got back on its feet but we don't expect that to happen before the first quarter of next year," he added.

“Back in October we celebrated with champagne that we set a monthly record by selling 8,500 cars. The fall in sales came out of the blue."

Denny said their investigations led to the conclusion that it was global uncertainties, especially skyrocketing oil and petrol prices, that prompted AAA Auto's clients to put off their purchases.

He said he experienced the same in Sydney in 1989-90, which made him move to Los Angeles, where after two “good years" sales began to wane in 1992.

“My observation is that in an uncertain economic environment, people tend to postpone their used car purchases by 6 to 18 months, and I think this is what we're seeing now."

Denny said these slumps usually last 15-18 months, adding that it was unlikely that the crisis would last this long in Eastern Europe.

According to data provided by leasing companies on AAA Auto's key markets, there was a single-digit decline in sales on the used car market. They observed a 5-7% drop in Hungary, while Denny said they registered a 10% decrease.

Family fiasco

Denny said criticism on AAA Auto's swift expansion was justified, but underlined that a fall of this size could not be foreseen. “And what's more, (it happened) right after (our) stock exchange listing, which is really embarrassing for me."

He said they would not have expanded so rapidly if they had had any glimpse on the future and would have concentrated more on the existing branches and the maximisation of the profit.

“I've built this company from scratch. I have faith in it and I wanted to share this success with others," Denny said, adding that one of the biggest buyers of AAA Auto's shares was his family living in Australia that invested more than EUR 1 m into the company's shares. “Can you image how I feel now?"

Cost cutting in focus

“This year will be about consolidation and cost cutting," Denny said, adding that in a bid to curb labour costs AAA Auto has already cut its company car fleet by 20% (from 900). He noted that in the first week of April the “signs of life" began to show at its branches and that first-quarter sales were largely the same as in Q4 2007, but showed growth in annual terms.

“the market situation, however, is still extremely tough."

To a question whether AAA Auto could generate profit already this year, he said: “We need to make profit as soon as we can..."

AAA Auto could enter Russia in the second half of 2009 at the earliest, Denny said, adding that this might not happen before Q1 2010.

While some analyses say AAA Auto would not be able to return to its pre-IPO profitability levels before 2013, Denny said “the situation is not that bad".