Lower spending impacts margins
2 Cheap Cars’ chairman says there’s no ignoring the cost-of-living crisis and that high interest rates have impacted most on those who have the least – including its customer base.
Michael Stiassny told shareholders at their annual meeting on September 28 that in tough times very few businesses avoid “some hurt” and 2 Cheap Cars “is no exception”.
He added: “We no longer expect to match last year’s profit levels. While the business is trading well and overall sales volumes are largely stable, consumers are spending less. That impacts our margins.
“In addition to the cost-of-living crisis, high interest rates have affected our customers’ ability to afford the financing they often rely on to make purchases. We’ve seen an increase in declined applications.
“We anticipate interest-rate cuts, further vertical-integration benefits and our expansion initiatives will boost business performance in the second half [of the current financial year], but the market is likely to remain weak.”
Stiassny, pictured, said the company’s board anticipated a solid full-year result for 2024/25, and remained certain about its strategy and optimistic about the future.
“While it will take some time for the effect of August’s interest rates to improve consumer confidence, spending will inevitably increase. People still need cars.
“This is a no-frills business, and one that’s in tune with the times as New Zealand experiences a prolonged and deep economic downturn.”
He added 2 Cheap Cars delivered on its promise to return to its successful, profitable pre-listing roots during the 2024 financial year by stripping out unnecessary cost, leveraging supply-chain dominance and expanding gross margin.
“Our results were unprecedented, proving the worth of a simple strategy executed with precision. The fundamentals and culture of continuous improvement are embedded.
“The business is increasingly agile. We can, do and we will continue to respond quickly to changes in trading conditions at a nationwide level and site by site.
As a result, 2 Cheap Cars remains well-positioned in the market.”
As for dividends, its board makes final decisions once results are approved at half and full year based on its policy of paying 50-60 per cent of net profit after tax, and acting “prudently” based on information available.
“Based on our current trading performance, we anticipate paying a dividend albeit less than in financial year 2024,” said Stiassny. “If there are any changes to that expectation, we will update the market.”
While the board acknowledged there were advantages to holding in-person shareholder meetings, Stiassny explained associated costs were increasingly prohibitive. “They do not deliver value to all shareholders\ hence our decision to hold this meeting online.”
