Jetcon sacrifices margins for bigger market share
Bullish on business in 2021 despite pandemic losses
Preowned car dealer Jetcon Corporation, which turned to discount deals and inducements to get cars off their lots and grow its way back from losses sustained under the pandemic, says the strategy has paid off so far in increased market share.
The year of COVID was the first time since its 2016 listing that Jetcon posted a loss, but Managing Director Andrew Jackson said the company he founded nearly three decades ago has been through other tough times – and losses – and was confident it would work its way through the crisis.
“With this one, we were much more prepared. We were in a better position than in previous episodes. We learned the lessons of the past, put things in place, and we’ve been able to weather this one pretty well, I’d say,” Jackson told the Financial Gleaner.
Still, the car dealer, who had previously cut back Jetcon’s footprint at the Tinson Pen Special Economic Zone, reducing the two-acre operation to half the space, has now put the brakes on expansion plans, for which the company already acquired adjacent property on Molynes Road and another lot on Dumbarton Avenue in Kingston.
“We’ve had to slow those projects,” said Jackson. “At the Molynes Road property, we have backed off for now. At the Dumbarton property, we had a number of ideas but we have paused for the time being,” he said.
Jetcon spun from net profit of $60 million to a loss of $6.7 million for year ending December 2020, its revenue having cratered by 38 per cent, from $1 billion to $629 million, during the health crisis that curtailed movement due to restrictions on gatherings and curfews.
That 38 per cent gap in revenue was further exacerbated by an unusually large depreciation charge booked by the dealership around leased fixed assets – referred to as right-of-use assets – around which accounting rules have changed.
Jetcon has historically used high-volume purchases to keep costs down. This leads, over the years, to high inventory levels since there was always a lag between acquisition of the units from Japan and other source markets, and getting the car to the customer.
High inventory is usually costly for a company. Jackson previously defended the strategy, saying the volumes on its lots gave more choice to car buyers. And he continues to stand by it, citing experiences under the pandemic, during which total inventory fell from $445 million to $392 million.
“The fact that at the start of the pandemic inventory was high, it served us well. We’ve been gradually bringing it down, to our benefit, because these are cars that we’ve already paid for,” Jackson said. “The net result is that our cash situation actually improved, because we went through three to four months last year where we did not buy a single car,” he added.
Jetcon ended 2020 with cash and bank balances of $26 million, more than double the near $11 million at hand in 2019.
Months into the pandemic, when the Jamaican government began reopening the economy, the dealership began rolling out a range of incentives to entice buyers. Jackson says the company cut prices and squeezed margins to give better deals to clients, and also ramped up advertising and social media activity.
The discounts that are still on offer range up to 30 per cent off showroom prices, and include other teasers.
“We offered to pay customers’ first two months’ instalments, we also gave cashback deals; and there was the scheme where we’d up front the insurance payments by including that in the final settlement after loan disbursement,” Jackson said.
He adds that the results of those efforts continue to pay off, but would not disclose sales data, citing market reporting rules.
“This year we actually sold more cars than we did for the first quarter of 2020, pre-COVID. That, for even some of my industry colleagues, is a shocker,” he said.
“What we’re really doing is lining up ourselves for the future. This will allow us to come out bigger and better than we went into the pandemic.”
Bigger and better for Jackson has to do with market share, which he currently prizes above bigger margins in this environment.
Jackson estimates that going into the pandemic, Jetcon had around four to five per cent share going in a very crowded auto market, but has now grown that share to about seven per cent of the market.
The estimate, he said, is based on various factors, including anecdotal information on loan disbursements, valuations, and even the number of licence plate holders sold to various dealers.