Ireland's auto industry faces significant consolidation in coming years and could be four years away from full recovery.

A strategic review of the industry by economist Peter Bacon points out that the country's motor retail network of around 540 franchised dealers and 150 others is unlikely to survive in a national market which Bacon describes as less than that of the Manchester region in England.

“Even in the peak sales year of 180,000 new cars in 2007, there was an average of only about one new car sold per trading day per franchise dealer. It’s now believed to have fallen to one sale every three days,” states the Bacon report.

Bacon labels "unsustainable" the upward trend in labour cost per unit of sales, and highlights that the new car stocking cost for dealers is “almost three times its level in 2006-2007 and about double its long-term level”.

He expects consolidation to involve a major role by manufacturers in both distribution and dealer networks in Ireland.

“This will likely mean a loss of independence, but the era of dealers working independently rather than as part of a supply chain is passing,” Bacon states.

The report highlights measures by which the Irish Government could support motor retail, including a two-year scrappage scheme co-financed by industry and Government, and a Vehicle Registration Tax offset scheme which would make Irish used cars more competitive and attractive to the UK,

Nevertheless, Bacon sees long-term growth in Ireland's motor retail industry. “In the longer term, demographic factors and relatively low car ownership rates in Ireland combine to suggest that the stock of cars is likely to grow. Sales of cars are projected to stabilise at about 240,000 per annum if some of the changes are introduced.”