Colonial battles Covid ‘cash burn’

Colonial Motor Company is warning consumer confidence remains the key to any long-term recovery in the automotive industry.

In a letter to shareholders on June 3, chairman Jim Gibbons reveals how the company has fared since restrictions to contain the spread of the coronavirus were introduced in March.

He details how the company has managed to limit the amount of “cash burn” since then and adds that it is keeping a close eye on sales activity.

“The return to ‘almost normal’ trading with level two has quickly gathered momentum, but with considerable variations between dealerships,” Gibbons, pictured, says.“Provincial locations were generally stronger than cities. 

“The May total new vehicles industry was down 32 per cent on last year, however, the immediate current activity is not necessarily a guide to the mid-term future. Nor is it possible to predict the results for the year ending June 30, 2020. 

“There are expected to be some asset revaluations to property, inventory and receivables. The company has come through the lockdown with the financial resources and people organisation to adapt to the new level of activity. 

“From this point on, the real issue is consumer confidence.”

Gibbons tells shareholders that after the country went into level four lockdown on March 26, revenue for the month was down 37 per cent compared to the same month in 2019. This decline was matched by the drop in sales for the new vehicle industry over the same time frame.

He explains the company effectively went into hibernation in April and company revenue that month was down 82 per cent on April 2019. 

“There were variations,” Gibbons says. “The car dealerships were fully closed with only a very small amount of essential service work carried out. Heavy trucks and tractors on the other hand had more customers who were an essential service, with some replacement sales as well as service business, managed with stringent procedures to maintain customer and employee safety.”

Gibbons adds that the main focus for Colonial during lockdown was on “preserving cash”. 

“The company went into level four lockdown with a buffer of credit available. ‘Cash burn’ during lockdown required strong control of expenses and inventory. 

“Both were well managed. The government wage subsidy assisted, contributing approximately one-third of the normal payroll. Most employees were paid 80 per cent of their average wages, including commission earnings, with the option to increase this to 100% per cent by drawing down on annual leave. Directors’ fees were also paid at 80 per cent. 

“Inventory control was assisted by proactive supporting policies from our major franchisors, notably Paccar and Ford.” 

Colonial reveals that while the country was at Covid-19 alert level three, between April 28 and May 14, dealerships experienced “high-cost, low-volume activity”.  

The letter tells shareholders a dividend decision will be considered as part of the preliminary results announcement due in late August.