Strong business growth

7 June 2023

The latest counts of businesses released by the Australian Bureau of Statistics (ABS) paint an interesting picture in terms of how the automotive industry has fared since emerging out of the worst of the COVID-19 period.

ABS data as at end of June 2022 shows there was a total of 79,747 automotive businesses operating in the economy – a net increase of 4,551 businesses or six per cent over June 2021. On paper, this is a strong result, well surpassing the 3.4 per cent business growth achieved in 2021 during the height of the pandemic. At the time it was supported by many business assistance measures implemented by the previous Federal Government, such as the JobKeeper program, the Boosting Apprenticeship Commencements wage subsidy program and other initiatives.

While the height of the COVID-19 period saw a large fall in the number of sole trader businesses across the automotive industry, the latest ABS data shows sole traders are back with a vengeance. In particular the data shows:

• Of the 4,551 new automotive businesses created in June 2022, almost three-quarters (72.2 per cent) were sole traders with no employees
• 32.8 per cent were new small/micro businesses with between one-to-four employees
• Small businesses with between five-19 employees fell by four per cent (or -181 businesses)
• Medium size businesses with between 20-199 employees fell by 0.9 per cent (or -40 businesses)
• Large businesses with 200 or more employees fell by 0.1 per cent (-4 businesses).

Therefore, sole traders and small/micro businesses were the only business types that increased between June 2021 and June 2022, and their growth was spread across 80 per cent of the automotive industry. Most notably, the largest increases in these businesses occurred within the following sectors:

• Passenger car hire and rental (up 15.3 per cent or 360 businesses)
• Motor vehicle dismantling and used parts wholesaling (up 10.6 per cent or 158 businesses)
• Automotive body, paint, and interior repair (up 10.1 per cent or 1,306 business)
• Car wholesaling (up 9.2 per cent or 97 businesses)
• Motor vehicle manufacturing (up 7.4 per cent or 239 businesses).

According to the data, the only sectors that declined or remained stagnant in their business numbers were:

• Trailer and other motor vehicle retailing (down -1.2 per cent or -6 businesses)
• Fuel retailing (down -0.6 per cent or -22 businesses)
• Commercial vehicle wholesaling (down -0.4 per cent or -1 business)
• Motorcycle retailing (no change).

Overall, the data points towards automotive becoming an increasingly fragmented industry, as well as a return to the trends prevalent before the pandemic, where sole traders and micro businesses were the predominant growth cohorts, with the exception they now appear to be the only growing segments with the population of larger employing business shrinking.

Comparing the ABS business counts data against industry employment figures for the same reference period, we see industry employment reach a peak of 401,500 as at June 2022, which represents an annual increase of 20,000 in industry employment – the highest increase in more than a decade. 

While the next set of business numbers is not due until the end of this year, current employment estimates show a drop in industry employment to around 386,000 people, which is closer to the industry average over the past decade. This suggests the six per cent surge in business counts to June 2022 may be just a short-term spike, and that we can expect overall business numbers to decline leading up to June 2023. This would not be surprising given the current economic environment with a tightening of interest rates and consumer spending. 

Whatever the scenario, we can expect industry conditions to remain volatile over the coming months, as businesses and consumers continue to adjust to a new post-pandemic environment.

Words: VACC Senior Analyst, Research and Policy Steve Bletsos.

As featured in Australasian Automotive June 2023.