Election impacts vehicles sales
Dealerships are experiencing a drop in enquiries as would-be buyers wait to find out what happens with the clean-car policies after the country goes to the polls in October.
Alex Gibbons, chief executive of Colonial Motor Company, says “many unknowns” are being created as the general election looms.
“There exists the potential for material changes to the clean-car scheme, which has dominated many distributors’ strategic planning, and has driven artificial peaks and troughs in demand.
“As a result, dealerships are experiencing a drop in enquiry as customers and the economy await the outcome.”
Looking further ahead, “directionally, we anticipate a deteriorating outlook for the economy driven by stubbornly high inflation. We will experience this in combination with slowing global economies particularly in China, a market New Zealand has become economically reliant on.
“The New Zealand economy is already experiencing a sustained downturn in our primary sector. This impacts provincial dealerships and is unlikely to abate in the near term. Government spending has supported demand in an economy that has been struggling with supply constraints.
“We would expect New Zealand to now face much-needed fiscal discipline that will result in downward pressure on business profitability. As a result, this would start to ease workforce supply and wage pressures over the medium term.”
Gibbons, pictured, notes local and global business environments that Colonial operates in remain volatile. “We cannot know what will come next be it pandemic, earthquake, cyclone or foreign war. We’ve become even more accustomed to adapting and working closely with customers, franchisors and industry partners.
“This year the economic outlook may feel gloomy and the industry is coming off a high. However, there remain positive opportunities.”
Gibbons explains that strong franchise partnerships, a customer-first focus and decentralised management approach are important foundations to empower the company to adapt to changing market conditions at dealership level.
“While some ‘green shoots’ are unlikely to bear substantive fruit in this financial year, the foundation that has been laid has the potential to grow the group in years ahead.”
Car dealerships
In Colonial’s annual report, Gibbon describes demand and customer enquiry for light vehicles being more erratic during 2022/23 than in the previous financial year, but by historical standards they remained strong overall.
Brands with desirable light models continued to be in high demand and short supply, while the next-generation Ford Ranger “remained an example of a formidable class-leading vehicle”.
He says: “Unfulfilled demand from the sales frenzy of the 2022 March quarter continued into the 2023 financial year with a modest number of delayed new-vehicle deliveries carried over.
“Only remnants of Covid-19 restrictions remained with our dealership teams relishing the opportunity to take advantage of uninterrupted trading months, a luxury the country hadn’t experienced in recent years.
“Vehicle supply chains remain congested although, relatively speaking, manufacturing and international shipping have steadily improved. A semblance of normality has returned to supply and demand in the marketplace.
“Increased supply invariably places downward pressure on margins as the industry juggles to find its new equilibrium. We can only hope lessons learned by industry over the past few years are retained and applied in future.”
Gibbons believes “further tightening of the clean-car schemes should continue to ensure the adoption of new-energy vehicles with many hybrids soon to incur an emissions penalty due to changes that came into effect on July 1”.
He adds “Electrified vehicles, including battery electric, plug-in hybrid and pure hybrids in the passenger and SUV segments, can now be considered mainstream in New Zealand.
“As demand pressures ease, brands that fail to deliver competitive models in the new-energy space will find life increasingly difficult under the current clean-car legislation.
“With such a wide array of powertrains available, the challenge for our sales teams is ensuring customers drive away in a vehicle suited to their needs, both in terms of function and residual value.
“Not all new-energy vehicles are created equal and pure BEVs, while progressively improving, have yet to solve the limitations associated with payload and towing range.”
Colonial’s capital works programme continues to back its franchise partners’ latest brand standards through refurbishment of its dealerships.
Rebuilds at Fagan Motors in Masterton and Ruahine Motors in Waipukurau are at varying stages of planning, with construction of the new Fagan Motors Ford and Mazda showroom finally scheduled to start next year. Other major projects completed this year were at Timaru Motors and Dunedin City Motors.
Trucks and tractors
Agricentre South performed well under increasingly adverse trading conditions as the 2023 financial year unfolded.
“A weakening primary sector has faced high inflation, falling primary product returns, labour shortages and increased costs for capital equipment,” explains Gibbons.
“These have put the rural sector ‘on hold’ and resulted in challenging trading conditions for Agricentre. It has an experienced management team combined with a robust parts and service operation well-positioned to support the Otago-Southland region through the market downturn.
“Agricentre has been successful in acquiring new territories in Mosgiel and central Otago resulting from the end of the distributor relationship between CB Norwoods and CNH Industrial (Case IH and New Holland). This expands our representation of those brands in Otago-Southland.”
The construction of a joint Case IH/New Holland dealership in Gore is nearing completion. While the short-term outlook for the primary sector appears constrained, “facility expansion and new opportunities for Agricentre to represent both these brands over the longer term are bright”.
Gibbons adds: “The Southpac heavy-truck dealership had another pleasingly solid year with a pipeline of pent-up demand still working its way through to customers. A market downturn in its truck sector is not yet evident although this may be due to the constrained supply chain.
“Truck supply is freeing up with units coming off the Kenworth and DAF production lines in greater quantities. More importantly, they are finally working their way to New Zealand as shipping capacity improves.
“This does stretch Southpac’s internal and external bodybuilding capacity as we work through a bulge in long-awaited arrivals. Increased arrivals provide the potential for a strong 2024 financial year for Southpac, together with the costs and risks associated with high inventory load over the short term.”
New horizons
Part of the executive management’s strategic plan over the past two years has been to seek out “scalable” complementary opportunities to diversify Colonial’s operations in its “core automotive skillset”.
Gibbons says: “That search took us to Hefei in China where we recently concluded an importing and distribution partnership for the New Zealand market with the holding company of JAC Motors (JAC).
“JAC is a significant vehicle manufacturer with advanced EV technology and is a market leader for a number of commercial-vehicle models in China. While JAC has an extensive automotive portfolio, vehicles currently available in right-hand drive are limited.”
Colonial’s subsidiary, NZ Automotive Ltd, has an immediate focus on the launch of commercials in JAC’s light-medium truck segments.
“At CMC, we pride ourselves on being more than simply ‘fair-weather friends’ and it is not often we embark on a major new venture,” notes Gibbons.
“No different to any of our existing franchise partners, we look forward to welcoming JAC into the CMC family of operations and in supporting the brand in New Zealand over the long term.
“We have also made some tough decisions in recognition of the changing automotive landscape. Our dealership in Hawkes Bay – The Hawkes Bay Motor Company – has been sold. The operation had struggled more recently and the logical conclusion was to exit.
“The transaction we were able to secure ensured the best outcome for the dealership’s staff and allowed CMC to redeploy the capital resources to other operations. Where they chose to do so, staff were taken on by the new owner or redeployed within the group. “
From September 1, the Energy Motors business in New Plymouth exited the Hyundai and Isuzu franchises to become the BYD dealer for the Taranaki region.
“This is an exciting opportunity with BYD, which has become the leading EV brand in sales across the world,” says Gibbons.
“We thank Hyundai and Isuzu for their support in the region. The dealership will continue to work alongside both brands and their customers to ensure continuity of the parts and service operations until a new dealer can be appointed.”
Financial report
Gibbons says Colonial’s “exceptional result” of the 2022 financial year was always going to be a hard act to follow in 2022/23, especially with the headwinds New Zealand faced.
“The cooling of the economy, gradual softening of demand and significant increased cost of doing business – all driven by the high-inflationary environment – were factors that challenged the business and required our dealership management teams to adapt.
“The agricultural sector has felt these impacts most acutely. As a result, our tractor dealerships will continue to face these headwinds until an upturn arrives.
“In contrast, Southpac has a substantial forward-order book. The capacity to deliver finished trucks is the main constraint – frustrating, but a better situation to be in than a lack of customers and sales.
“In addition to the obstacles already mentioned, an unrelenting pipeline of compliance regulations and requirements, as well as little warning of tinkering with the clean-car scheme fees, have challenged the industry.
“Importers scrambled to cope with sudden artificial spikes in demand and, through no fault of their own, suffered the consequences. Vehicles already ‘in build’ or in transit incurred higher fees with virtually no ability for the importer, dealer or customer to respond.
“The most recent example was the haste to impose increased clean-car scheme fees that took effect from July 1. All this achieved was to again pull forward demand to June 30. This resulted in record new-vehicle registrations for that month, followed by the inevitable slump in subsequent months.
“Frustrations aside, the 2023 financial year has been another strong result for CMC that we can be proud of and an outstanding one in a weakening but still favourable market. As expected, trading profit after tax was down but still represented the second highest trading profit on record.”
Focus on people
“While 2023 was less disruptive for our people at a dealership level than in the previous financial year, they continued to be challenged on a number of fronts – by the remnants of an unpredictable international supply chain, a constrained labour market and the inflationary environment,” says Gibbons.
“It is testament to their collective experience and loyalty – and to the underlying ‘CMC culture’ we foster – that the group can consistently deliver strong outcomes for customers and franchise partners, and shareholders.
“This year was no exception. Commitment to our people, through individual development and the preparation of our next generation of leaders, remains a core focus. Existing industry training programmes run in tandem to our franchise partners’ specific development courses.
“Added to this, the group office has expanded the CMC-specific leadership and management training for junior and senior staff. Long-term success and shareholder value go hand-in-hand with looking after our people, customers and franchise partners.”
This year, Colonial farewells Alan Kirby, chief executive office and dealer principal of MS Motors in Nelson. He retires in December.
Kirby has been with the group for 17 years. He has overseen the growth of MS Ford, the addition of Nelson Kia and an increased footprint of the Bridgestone Tyre Centres in the wider Nelson region.
Jimmy Banks, fixed-operations manager of Team Hutchinson Ford – Christchurch, has been with the group for more than 22 years and will lead MS Motors into the future.
