‘Great year’ for Turners

The car market is “bouncing along the bottom”, according to the chief executive officer of Turners Automotive Group.

Todd Hunter says overall used-car volumes between April and August 2024 tracked in line with last year.

This supports the company’s position that used vehicles make up a “much more resilient market” with new cars being impacted in a material way as they tend to be more discretionary.

“I think the overall trend is that we see demand continue to strengthen for lower-value cars as the economy has deteriorated and consumers have been impacted,” Hunter told shareholders at the company’s annual general meeting. “They still need vehicles, but are spending less because they can afford less.”

As for registered motor-vehicle traders, Hunter said: “The overall trend is clear in that there are significantly less dealers now than five years ago. 

“There tends to be a reasonable correlation between dealer numbers and used imports coming in. Our expectation is dealer numbers will continue to drop and that ultimately this is a business where scale will win.”

He described 2023/24 a “great year” with three out of Turners’ four businesses showing material growth against 2022/23.

Finance was impacted by the interest-rate environment. “We expect the composition of profits in financial year 2025 to look different with particularly finance producing higher levels of profit as interest margins start to expand again.

“Our brand is strong. We’ve continued to improve the way we source vehicles, we are driving efficiencies particularly in how quickly we can bring vehicles to sale and then sell them, and opening more branches is critical to our continued success. To grow profits 130 per cent over the past five years has been phenomenal.”

View across divisions

Turners is continuing to expand its network by extending existing operations or opening in new territories. This will bring extra opportunities to source vehicles, which will lead to more sales. 

“Growing our unit sales and market share isn’t just about opening in more places,” said Hunter.

“It’s about the brand investment we’ve made, sourcing, operational improvements to increase the speed of processing, the people we have doing an excellent job, and investment in data and technology. We feel it’s a strong position for us and difficult to replicate.

He described branch expansion as “building really well” with more opportunity coming to market as interest rates and holding costs increase.

The Timaru and Napier branches opened in the past financial year. “A number of developments are on the go” for 2024/25 and Turners now owns 15 of its sites all on balance sheet at cost of $115m.

Hunter told shareholders attending the AGM on September 18 that an “exciting plan” is coming together for the Christchurch region. 

Turners’ current single branch in Christchurch will become three separate sites across the city over the next 18 months. 

Worked started in August on redeveloping the facility in Shands Road. It should be completed in the next six months or so. 
The Moorhouse Avenue project will start in the next few weeks and should be finished in mid-2025, while the aim is for Wairakei Road to get under way before the end of 2024 with construction finishing July or August next year. 

Tauranga Tauriko, meanwhile, is a new commercial site where Turners will sell trucks and machinery, and operate its damaged vehicle business from. This is due for completion in the next month.

As for finance, Hunter said the company has weathered the interest-rate shock in Oxford Finance.

“We have focused on borrower quality and margin. Once market conditions, improve we will be back into growth mode. 

“We are in a strong position given the quality of the loan book, and the controlled origination we get from Turners and our direct channel.” Profits for 2024/25 are expected to come in “materially ahead” of the past financial year. 

Net interest margin (NIM) has stabilised. “It is starting to grow again and should gather pace as the Reserve Bank does what it should do. We should see NIM expand further in as the year develops.”

Average credit scores of loans originated in 2023/24’s second half set a new high with premium borrowers making up 56 per cent of the book. In more recent months, premium lending has been 60 per cent of new originations.

“It’s no surprise that with our focus on bringing better quality borrowers into the loan book, our arrears levels have outperformed the broader market,” noted Hunter.

“The most recent Centrix auto loan market arrears numbers were 6.3 per cent with our consumer arrears tracking at well less than half these rates.”

Hunter described Turners’ insurance division as a “well-tuned business”, delivering excellent growth over the past five years at 130 per cent. 

“Our distribution networks remain vitally important, but we have laid the groundwork for a direct-to-consumer offer, which will target the 50 per cent of used cars bought and sold between private individuals.

“Claims continue to be well-managed. Claims cost inflation is being offset by less frequent claims. 

“Managing claims ratios is also very much about your risk pricing and we’ve introduced new layers to ensure we are pricing correctly for the risk we are taking. More recently we are also seeing evidence that claims inflation has peaked.”

When it comes to credit management, Hunter said the business is recovering. “The tightening economy is supportive of growth and our payment bank is being rebuilt. The debt value loaded is up 14 per cent year on year and this has led to an increase in debt collected as well. 

“New Zealand-wide credit metrics continue to deteriorate and are now the worst they have been in the past seven years, which should see debt-load levels increase over coming years.”

Hunter cited data from credit bureau Centrix that more than 12 per cent of consumers are now in arrears, well above pre-pandemic levels.

Looking to the future

Hunter said 2024/25 has been “playing out largely as anticipated” at the end of the 2024 financial year. 

“In auto retail, we are focused on completing new branch developments on budget and on time. We will continue to push hard for the transition of wholesale to retail and see upside coming from this strategy. 

“Consumers are demanding lower priced vehicles and an overall fall in demand is having the expected impact on margins. This is exactly what we had anticipated. Overall sales volumes are tracking ahead of financial year 2024.”

When to comes to Oxford Finance, the “expected improved performance” in the current financial year is being seen due to lower-than-expected impairments and credit losses, and improvements in interest margin. 

“We still think it is the right thing to maintain our credit discipline given the downturn has some time to play out. In insurance, our earned premium is holding up well and claims ratios are stable. 

“With credit management, our payment bank is rebuilding as debt load increases from the tightening economic conditions and resultant impact on consumer arrears.

Despite the operating environment, Turners is expecting a record first-half performance for 2024/25 that’s ahead of the same period in 2023/24. 

“We’re on track for exceeding the $50m NPBT goal by the end of financial year 20254,” said Hunter. “The obvious caveats remain in that there are still risks with the rate of recovery in the overall economy and consumer demand.”