Colonial’s year in review
The chief executive of Colonial Motor Company says the perfect word to describe 2021/22 is “extraordinary”.
Alex Gibbons explains: “It’s easy to dwell on the challenges of the past year and they were numerous. We traded in an environment of multiple lockdowns and a traffic-light system that appeared to be parked in red.
“It felt inevitable the majority of us would be exposed to Covid-19, with a resulting rolling wave of staff sickness and isolation. This coincided with tight labour and capacity constraints across all operations. Service departments bore the brunt and many service hours were lost.”
He adds supply chains remained unpredictable and “stuck in catch-up mode”, and have been exacerbated by the war in Ukraine, coronavirus lockdowns and extreme weather events.
“Monthly registration numbers were largely determined by shipping arrivals, making trends hard to identify on anything less than a quarterly basis,” remarks Gibbons, pictured. “Materials and manufacturing capacity for electric vehicles [EVs] and microprocessors for all products were – and remain – in critically short supply globally.
“For New Zealand, exceptional supply and demand conditions were further complicated by targeted regulatory intervention via the clean car rebate/tax and impending clean car standard.
“Despite disruption and uncertainty, the first three quarters of the financial year saw the favourable trading conditions of last year continue. Most new vehicles arriving were pre-sold and the order bank remained healthy. Sales disrupted in one month were merely deferred.
“External factors aside, what defined our success was the ability to adapt. Our experienced staff and management teams, franchise partners, business suppliers and customers showed willingness to work together to get the job done.
“Our decentralised dealership structure enables rapid local decision-making, which proves advantageous in times of such uncertainty. This culminated in revenue for the financial year exceeding $1 billion for the first time. A record trading profit after tax of $33.3 million resulted in total dividends of 62 cents per share, also a record.”
Click here for Autofile Online’s report on Colonial’s financials for 2021/22.
Car dealerships
In Colonial’s annual report, Gibbons says the company’s car dealerships generally experienced another strong year assisted by higher-than-normal levels of discretionary income, consumers’ appetite to spend and “desirable” product. “Rarely have conditions aligned in such a way and the industry benefitted.”
He adds: “Growing social awareness of climate change and global clean-vehicle regulations are influencing demand. A potential customer no longer has to trade off the desirable features of an ICE [internal combustion engine] vehicle to purchase an electrified one, including BEVs, PHEVs and hybrids.
“We’re reaching an inflexion point and it’s changing the game. The government’s clean-vehicle policies have incentivised local franchises to secure a supply of EVs from their international parents. Unfortunately, they are in short supply globally and the aggressive nature of emissions targets appear to be adding to inflationary pressure in the market.
“While the execution of these policies still presents many unsolved challenges, the effects of climate change and global response to this are impacting everyone and our industry is no exception.”
Gibbons stresses Colonial is committed to navigating the risks, opportunities and obligations of the response to climate change to optimise sustainable, long-term value for shareholders.
“We remain in a mixed powertrain environment, allowing customers to choose a solution that best matches their needs. The new passenger segment, for example, is the most advanced on the electrified journey and already EVs in this segment are approaching 50 per cent market share.
“The ever-increasing variety of EVs delivers considerable benefits, particularly in urban environments where range is less of a factor.”
The group is continuing to invest in its electrified infrastructure to ensure dealerships and staff are equipped to support an increasing number of next-generation vehicles, which will soon arrive in the market.
“The light-commercial segment, on the other hand, is a different beast,” comments Gibbons. “Few electrified vehicles are available in this segment. Those that are remain in critically short supply.
“Operationally, light commercials often require a combination of off-road, payload, towing and extended range capability which, at this stage, remain a strength of current ICE vehicles.”
When it comes to redevelopment projects at dealerships, Colonial still has an extensive workbook and capital commitments ahead to upgrade existing facilities.
Avon City Motors in Sockburn, Christchurch, Timaru Motors and Dunedin City Motors are being refurbished with work due to be completed in 2022/23.
Team Hutchinson Ford’s new dealership in the Garden City’s CBD is complete and fully operational. Next up will be a complete rebuild of the Fagan Motors sales and administration building in Masterton.
However, rising building and labour costs and material shortages have combined to slow progress, and they continue to defer and complicate a number of Colonial’s other projects.
Trucks and tractors
“The Southpac Trucks team has delivered excellent results over the past couple of years, including operating as an essential service during lockdowns,” says Gibbons. “There will be limited relief next year to deliver on pent-up demand for Kenworth and DAF trucks.”
Southpac’s new, sizeable facility in Rotorua is slated to start operating in 2022. In Timaru, a dedicated truck-related parts store is open and the service workshop is in the final stages of being built.
Agricentre South continues to grow its business, and Colonial is committed to expanding the Case IH, New Holland and Kubota brands. A significant upgrade will soon start in Gore to enhance that sales and service operation, allowing Case IH and New Holland to operate from a single site.
“Similar to cars, trucks and tractors have struggled with inconsistent and delayed supply as they were impacted by manufacturing and supply-chain disruptions when demand remained strong,” says Gibbons. “Longer-than-normal lead times are the result. These are likely to persist for some time to come.”
Looking ahead
Colonial continues to observe external economic factors that, in normal circumstances, should see a greater softening in demand and eventually a correction take place in the market.
Gibbon says: “Despite considerable inflationary pressures across all aspects of our operations and the wider economy, the future remains difficult to predict. But one could safely speculate that we, as a country and an industry, have yet to experience the full impacts.
“Fuel prices remain high, but seem to have dipped from their peak. Housing prices are falling, but that’s against a 50 per cent rise in the past three years. Interest rates and the cost of living keep going up but wage growth, driven by labour shortages, counteracts the impact.
“Globally, the geopolitical situation remains precarious with the related impacts of the conflict and energy crisis in Europe, droughts and lockdowns in China, and floods in Japan challenging the ability of supply chains to get on top of demand. We continue to expect uncertainty and it’s prudent to do so.
“Directionally, the indicators suggest we are now in a softening market, but the unknown is whether we’re flying towards a soft landing or a bumpy one. Our strategy is designed to adapt to whichever eventuality plays out.
“Our preference remains to make long-term capital investments in strategic property assets from which our dealerships can deliver sustainable growth. These investments generally take time to bear fruit and absorb considerable capital. But, over the longer term, they provide flexibility and stability during less-favourable times.
“We are actively exploring new opportunities that utilise our core competencies. If they should materialise, they may require capital investment in property assets. We continuously balance investment in long-term commitments with our existing loyal partners and our desire to deliver profitable growth in new areas.”
It’s goodnight from him…
Colonial’s board of directors, management team and staff have bid farewell to Matthew Newman, pictured below, after his 36-year career with the group. He stepped down as chief executive of South Auckland Motors and Southern Autos on June 30.
Gibbons says: “He has led the performance and growth of our car dealerships in south Auckland for three decades, and has passed on the mantle of leadership to Michael Tappenden [South Auckland Motors] and Andrew Craw [Southern Autos].
“Both Michael and Andrew have worked alongside Matthew in preparation for the transition, and as chief executives they are well-equipped to tackle challenges ahead.”
Colonial’s 104th annual general meeting is being held on November 11 in Wellington. Newman will be retiring from the board at the end of it. John Hutchinson was appointed by the board as a director from September 1 and he will stand for election at the AGM.
