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Drop in profits predicted

Owner of 2 Cheap Cars says a decrease in sales of cars, insurance and finance, down to plethora of issues hitting used-vehicle market.
Posted on 28 January, 2022
Drop in profits predicted

NZ Automotive Investments (NZAI) has advised the NZX of lower-than-expected revenue because of lower car, finance and insurance sales in December and early January.

The company, which owns 2 Cheap Cars, now expects underlying net profit after tax (NPAT) for the year ending March 31 to be in the range of $2.3 million to $2.7m – down on the prior comparative period of $3.8m. 

Actual NPAT, which includes a one-off gain from rearranging of leases of $900,000, is expected to be between $3.2m and $3.6m, assuming there is no further impact from the Covid-19 pandemic.

The company reports it remains in compliance with all bank covenants, and is in a solid financial position with cash balances of $5.8m and net debt of $5.4m, as of January 26.

“The ongoing Covid-19 presence and changes in consumer behaviour have continued to impact sales, in particular in the Auckland region,” says David Page, chief executive officer.

“Although November’s results were in-line with expectations, management is not seeing the expected bounce-back in sales previously experienced following the first Covid lockdown.

“In addition, the company’s decision to gear its fleet up on the strength of the government’s proposed clean car rebate implementation from January 1, 2022, coupled with the government’s deferral of that date to April 1, has negatively impacted the business. The business had expected to see a lift in demand of low-emissions cars in January, which it would benefit from.”

Page adds recent changes to lending standards in the Credit Contracts and Consumer Finance Act have impacted on finance and insurance product sales “due to time delays and consumers taking time to adjust to the new requirements”.

NZAI is also continuing to experience increased costs for certain vehicles in Japan and increased freight costs. 

“A key driver of increased costs in Japan has been the impact that the semi-conductor shortage is having on the new-car market, which in turn is raising demand for used vehicles,” says Page.

“Management has adapted to the challenges presented and have taken key actions to address issues outlined. These include adjusting buying parameters, reviewing vehicle pricing, amending the stock mix on dealerships, and refining the finance and insurance processes.

“The new 2 Cheap Cars Westgate dealership, due to open in February, is expected to help deliver improved sales volumes.

“As announced with our half-year result in November, prior to the August lockdown the business was performing well and ahead of the same Covid-affected period in 2020.”

NZAI has completed the relocation of its vehicle-processing hub to new premises in Onehunga, pictured above. It now expects to realise “benefits from efficiencies and expanded capacity to process cars ready for sale in the new financial year”.