Pandemic, sales rush depletes new vehicle stocks

New car sales have been running hot … but at what ultimate cost? Brands are running short of stock and the industry says buyer demand is racing ahead of ability to supply.

New vehicle stocks held in New Zealand are diminishing fast … and replenishment has slowed.

NEW vehicle distributors are facing a new Covid-19 crisis – not enough vehicles to sell for at least the remainder of this year.

An unexpected rush in sales over the past few months has accelerated the issue of diminishing stock availability, a ripple effect from Covid-driven global assembly line shutdowns that occurred months ago.

It’s a double-whammy that is leaving showrooms running low on stock with no easy respite in sight.

The organisation that speaks for the new vehicle industry has declined to cite any brands or cite any specific models and is cautious when discussing the severity of the situation.

The Motor Industry Association does, however, acknowledge there are now insufficient vehicle numbers to meet present buyer demand.

Says chief executive David Crawford: “I wouldn’t describe the situation as catastrophic … but it is lumpy.”

Talk at retail and distributor level is certainly awkward; popular models are becoming harder to secure and orders taken now might not be fulfilled until next year, while impending new products are being delayed and allocations being reduced.

One big provincial yard for a top make last week suggested the cars it held in its showroom could not be easily replaced. A metropolitan outlet for a popular premium brand also recently said ready availability of two core models has also been in jeopardy. The distributor for that make did not respond to questions about this.

New vehicle distributors normally carry up to 100 days’ stock for vehicles and large parts, but this has reduced by around 50 percent.

At the end of last month, the national inventory of new passenger vehicles was just over 11,000 units – the lowest in at least eight years and half the tally held in April – and it’s been worse for commercials, that stockpile have quartered to under 5000 vehicles.

Most distributors, at best, are carrying no more than about a month’s stock, according to the MIA, which has been collating information from factory-appointed new vehicle importers.

At retail level, this means an increasing count of outlets are keeping up their business by taking customer orders on understanding those buyers may have to wait until early next year before their purchases arrive.

Crawford suggests a combination of market forces and temporary vehicle supply constraints will continue for most of 2020.

While shipments keep arriving, there are now likely to be long wait times for some makes and models and customers who have pre-ordered will have priority over walk-ins.

“Supply of vehicles remains affected by reduced factory production in various geographic places due to Covid-19 restrictions.

“Distributors are also facing challenges predicting how much stock to order and hold.

“It has to be admitted the industry got caught by a strong June and July, once the Covid restrictions eased,” he says.

“The industry didn’t entirely anticipate the level of demand for new vehicles.

David Crawford, Motor Industry Association chief executive: “The industry didn’t entirely anticipate the level of demand for new vehicles.”

“We didn’t factor in that people who were unable to travel overseas on holiday, would decide to purchase a new vehicle instead – just like others would have decided to renovate a kitchen.”

Though already braced for a slowdown in sales when the year began, the new car market was nonetheless in good shape, having had a series of highly-profitable bumper years.

Coronavirus rendered all forecasts worthless. Assembly plants all around the world were forced to shut down – some for several weeks, some for up to two months - because of the pandemic.

Though most are back in business, many have yet to achieve full production. Even when assembly lines are back to full steam, delays from components suppliers are common.

The supply chain also hasn’t recovered. This is particularly the case with product coming out of Europe, which even under normal circumstances have to be ordered up to six months in advance.

However, it seems probable all makes and sourcing points have felt impact to some extent.

Also hurting New Zealand is the modest size of our market – there have already been instances were other countries more important to makers have been given higher priority.

All this means that as much as recent months of emergent retail frenzy was welcomed, it has also been a sting because it was unexpected.

While the MIA warned as early as in March it would be inevitable that the shock wave from Covid’s impact on global car making and the parts industry was inevitable, it didn’t predict that consumers would go into such a buying frenzy these last few months.

Data shared by the MIA for this story reveals how NZ’s relatively healthy vehicle stockpile before Covid has pretty much gone.

At the beginning of this year the national new passenger vehicle inventory stood at 16,049 vehicles.

new vehicle production has largely resumed .. but plants are rarely operating at full-scale pace and makers are sometimes steering product to bigger markets than New Zealand.

This rose to 20,327 vehicles in April, but the countrywide Level Four lockdown, then meant cars that landed but could not be retailed – hence, despite 5625 vehicles being cleared by Customs in April, only 707 vehicles were registered in that month.

Since then, the figures have been sliding as supply of vehicles built and in transit before the factory closures started to dwindle.

May’s inventory was 18,888, this reduced to 15,088 in June, to 12,593 in July and to 11,057 last month.

August’s count was the lowest in at least eight years but stock numbers are expected to reduce even further for at least the next two months.

Meanwhile, the import clearances are continuing at history low levels as they slowly recover to some normality – 2858 in May, 4619 in June, 4327 in July and 5405 in August – but they are not meeting the growing consumer demand. That’s at least 50 percent higher.

The commercial vehicle inventory that sat at around 12,000 vehicles in April and May had reduced to 4817 vehicles by the end of last month.

Since then, consumer demand has increased to the extent there were 3533 registrations in August – way ahead of the 962 vehicles that had cleared Customs. This means that for the remainder of the year there is virtually no fat in the commercial vehicle inventory.

Parts supply is also being severely affected by the pandemic. Prior to Covid-19, parts were transported to New Zealand by both air and sea, but air freight has now become too expensive due to reduced numbers of flights, and this has forced more use of sea freight which has much longer time frames, Crawford says.

The flow-on from the drop in new car availability is also being felt in the used car sector, with a commensurate drying up on late model pre-owned stock from fewer trade-ins occurring.

# Additional reporting by Richard Bosselman

Time for cash for bangers

Vehicle scrappage – new car distributors say today’s massively depressed market provides the right climate for action.

Bangers for cash schemes have proven effective overseas.

 FACED with a remainder of 2020 which is going to see demand for new vehicles remain tepid at best, distributors have turned to the Government for help.

They’re seeking fast-tracked introduction of new policies to boost demand - incentives to compel the public to buy into fuel-efficient vehicles allied with others to remove old polluting and potentially unsafe vehicles from the scene.

The Motor Industry Association, the organisation that represents the new vehicle industry, is leading the push.

What spurs this all the more is a dire registrations outcome for April. A sector in lockdown put 90 percent fewer new passenger and light commercials vehicles into public use than it managed in the same month of last year. Year-to-date the market is down 32 percent.

“The Government can play a decisive role in lessening the economic pain we are feeling,” said chief executive David Crawford.

The removal of older vehicles from the roads is hardly unknown. The United Kingdom and many European countries in particular have such ‘bangers for cash’ programmes in place, usually with the dual aim of getting rid of older and more polluting vehicles, improving safety and, of course, stimulating sales of newer – ultimately brand-new – new vehicles.

david crawford

New Zealand has no such thing and this has contributed to the average vehicle age approaching 15 years. For example, the average of vehicles in the United Kingdom is just over eight years, and in Australia and the United States it is just over 10 years. The average age here now is, in fact, higher than it was before NZ accepted used import cars. Lowering the fleet age was given as a reason why ex-Japan used cars were allowed here.

Around four million vehicles are thought to be registered in New Zealand. It’s thought around 68 percent are less than 18 years old. Twenty-one percent are aged between 18 and 27 years. That means we have at least a million vehicles on our roads aged more than 20 years and with exhaust emissions many times higher than modern-day vehicles, and potentially with safety issues as well.

Saus Crawford: “We all know we have an old fleet with numerous polluting and unsafe cars roaming our roads.

“We believe it is time for the Government to provide financial incentives to remove the vehicles which are older than 20 years of age and/or where their exhaust emissions standards are the equivalent of Euro 3 or less.” (Euro 3 is a globally-recognised emissions standard introduced, first in Europe, in 2006).

He added such a move would be in line with New Zealand’s new road safety strategy and the Government’s climate change objectives.

For all that, scrappage is an issue that various administrations have considered for years.

the higher the quality of the fleet, the better the safety standard

Two trials were conducted by the Ministry of Transport, the first in 2007 and another in 2009. The first was in Auckland where owners of old clunkers were invited to hand in their vehicles in return for $400 worth of free passage on the city’s bus and train services. A total of 253 vehicles were scrapped. Organisers determined the benefits of the trial exceeded its $102,800 cost.

The second trial was in Wellington and Christchurch, where owners were paid the scrap metal value of their vehicles plus $250 worth of public transport passes. They also went into a draw to win a new Toyota Corolla.

A total of 349 vehicles were collected, but officials decided the whole thing was not cost-effective due to the low number of vehicles received and the relatively low overall social and environmental benefits relative to the trial’s cost.

Since then nothing else has been tried.

That’s been in stark contrast to other parts of world where scrappage schemes have been introduced. In the UK, for example, the Government introduced a scheme in 2009 where owners of old cars were offered the equivalent of around $6000 to get rid of them. Various car companies have also implemented their own scrappage schemes, most recently in 2017.

Last year our Government looked at a total of 11 potential new policies aimed at reducing New Zealand’s greenhouse gas emissions – and one of those was the introduction of some form of scrappage scheme. Incentives considered included supply of public transport passes, and credits towards the purchase of either a cleaner car or some other form of transport such as an e-bike.

older cars are also generally more problematic for exhaust emissions

But that idea didn’t progress much further, with the Government opting instead to concentrate on the so-called feebate scheme that would financially encourage motorists to buy low-emission vehicles via rebates, and discourage purchases of more fuel-hungry vehicles via fees.

The only thing that happened in relation to scrappage was a statement from Associate Transport Minister Julie-Anne Genter that the subject had been passed on to the NZTA, and that she expected to hear back from the organisation in a few weeks.

That statement was in October last year.

Meanwhile New Zealand’s vehicle fleet is getting progressively older – average age was 11.7 years in 2000, 14.4 years in 2017, and today 14.9 years. Should we be proud of this?

some car brands in the uk remain avid advocates of scrappage.

‘Closed for business’: New car industry appeals for help

April’s new vehicle sales count provides dramatic proof the Covid-19 pandemic has the new vehicle industry reeling.

COVID-19 has swung a near-knockout blow to New Zealand’s new vehicle industry, with April recording a more than 90 percent fall in vehicle sales.

In stark contrast to April last year when a record 10,640 new vehicles were registered, the national Coronavirus lockdown is the reason behind just 1039 vehicles being registered last month, with the top-selling model, Kia’s Seltos, registering 95 of those.

Now, the organisation representing the country’s new vehicle industry says it needs help – and it is demanding the Government fast-track introduction of a series of policies to achieve this.

“The Government can play a decisive role in lessening the economic pain we are feeling,” says Motor Industry Association chief executive David Crawford.

The organisation wants deferral of introduction of any feebate scheme, replaced instead with incentives for the purchase of fuel-efficient vehicles.  Feebates  are a combination of fees imposed on larger gas-guzzling vehicles and rebates offered to purchasers of smaller and fuel-efficient vehicles.

“Prior to the pandemic, the MIA supported in principle the adoption of a feebate scheme. However, given the degree of fiscal impact the pandemic is causing, we believe this policy needs immediate review,” says Crawford.

The MIA also wants the Government to accelerate the uptake of plug-in vehicles  across the Government fleet.

“To date, uptake of plug-in vehicles by government agencies has been less than modest at best. The MIA calls on the Government to increase departmental budgets to permit departments to increase their uptake of BEVs and PHEVs,” says Crawford.

Financial incentives should also be introduced to remove from the national fleet vehicles older than 20 years, and/or where their exhaust emission standards are the equivalent of Euro 3 or less, Crawford says. He adds that this vehicle scrappage would be in line with the country’s new road safety strategy and the Government’s climate change objectives.

 “We all know we have an old fleet, with numerous polluting and unsafe cars roaming our roads,” he says.

Crawford describes April’s new vehicle scene as “closed for business” other than for the supply of essential vehicle and three business days at the end of the month for contact-less sales.

That distributors were able to sell as many as they did was testament to their determination to partially re-open for business while maintaining strict health and safety process,” he says.

Overall, new vehicle registration were down 90.3 per cent in April – sales of passenger vehicles and SUVs dropped 89.6 per cent, and commercial vehicle sales were down 91.4 per cent.

So dramatic was the fall in registrations, that some highly unusual sales results were recorded by the MIA.

Market leader for the very first time was Korean brand Kia, which achieved a 16 per cent share with 169 sales, including 95 Seltos small SUVs, 24 Rio hatchbacks, and 22 Sportage compact SUVs.

The Seltos was also easily the top-selling passenger vehicle, with the Suzuki Swift hatch and the pint-sized Suzuki Jimny SUV in second and third places. 

And in the commercial sector it was the Toyota Hilux ute that was top model with 59 sales, followed by the Holden Colorado that is on runout prior to the Australian brand exiting the New Zealand market at year’s end.  And Ford Ranger – which has dominated the light commercial market for several years – was in third place with a mere 29 sales. 

And here’s a stark illustration of the state of New Zealand’s rental industry: whereas usually monthly vehicle registrations number in the hundreds, in April there were just two – and they were both Isuzu N-Series trucks.

 Covid Countdown:  April’s 10 Best-Selling Vehicles

Kia Seltos                     95

Toyota Hilux                 59

Holden Colorado          38

Suzuki Swift                  35

Ford Ranger                  29

Suzuki Jimny                 28

Kia Rio                          24

Holden Commodore     23

Kia Sportage                 22

Toyota Hiace                21

Covid-19: How's post-Level Four life for distributors?

How’s our new car market doing – and what’s the sentiment about an environment in which coronavirus and its after-effects seem set to imprint for a long time? The big names of the industry speak.

TODAY’s move to Level Three precautions allows for improved business opportunity; parts supply will resume, service bays will reopen and, yes, you might even be able to buy a new vehicle.

Yet everything still requires care and consideration. While less restricted than Level Four, the next step down still demands every contactless interactions. Restrictions will still apply with Levels Two – the next step, potentially coming after May 18 if all goes well – and One, though those are definitely more welcoming.

With this in mind, the distributors here – leading distributors were invited to offer thoughts, pertinent to their brands, in respect to this question:

“What are the challenges and potential opportunities as you see them that will arrive in a Level Three Covid-19 new vehicle market. Is that a level at which you can begin to restore your business and, if not, what condition would be required?”

Neeraj Lala, chief operating officer, Toyota New Zealand.

Reason for inclusion? Market leader.

Toyota will continue to provide our customers with an exceptional customer experience under Level Three.

Twenty-four months ago, we revolutionised our business to a new model, and both fleet and private customers have enjoyed the new experience. Under Level Three, our haggle-free pricing for private and fleet customers of various fleet sizes, means the car buying experience is easier as you don’t need to negotiate a price over email or phone.

We have also been operating flexible test drives for the same period which means customers have the flexibility to collect a vehicle and enjoy the experience with their bubble without any face-to-face contact and safe distancing on collection. 

We have expanded our service to offer a home delivery with strict health and safety and social distancing options. Every vehicle collected from a Toyota Store, either for servicing or a new or used vehicle sale, will meet the strict sanitisation guidelines we have put in place to keep everyone safe. 

Our website will provide customers with an easy booking system for test drives and servicing, and live chat to assist those customers who require extra support. In terms of vehicle ownership, our servicing facilities have been organised to comply with alert level 3 standards and will continue to provide their high level of friendly service, looking after all Toyota customers.

Reece Congden, head of marketing and corporate affairs, Mitsubishi Motors NZ.

Reason for inclusion? Top electric vehicle volume, wide product portfolio

As New Zealand moves to Level Three, the automotive industry will continue to face severe trading conditions.

While it is a return to work in part, it has yet to be fully understood how effective contactless sales will be for a high involvement product like cars.

MMNZ have been undertaking extensive work while we have been under Level Four restrictions, to ensure that our business is not only 100 percent compliant, but also that our dealer partners are ahead of the curve. 

Our investment in digital platforms and engaging customer-facing content has us well placed to start making the transition to contactless sales - even if it’s only a temporary move.

Having said that, car sales is a ‘people business’ and our dealers are an active part of their local communities, so how Kiwis respond to being asked to purchase a car from their living room will be a point of great interest for all brands.

One of Mitsubishi’s key strengths is our high-performing dealer network. We are supremely confident that they will adapt and fight for their slice of whatever pie is available under Level Three. When you match that with the value-focused offers we currently have in the market, we believe that we’re as well placed as any brand to rebound strongly.

(One initiative from MMNZ has been to produce three awareness videos relating to sales and servicing interactions under level Three. No lockdown regs were breached by the way: The NZ operation reached out to friends in Australia, with content shot across the Tasman). 

Simon Rutherford, managing director, Ford New Zealand

Reason for inclusion? Light commercial dominance with Ranger ute 

There certainly will be challenges - for everyone. We are effectively operating in a constrained environment; our showrooms are closed, sales, service and parts operations will be contactless.

We are also operating new systems and process with strict controls and rules around sanitation, social distancing and contact tracing to keep customers and our staff as safe as possible – all this in a market that looks like it has stepped back to 2008 - 2009.

We and our dealers are pretty adaptable and satisfied that the measures and capabilities we have put in place to conduct business in a Covid-19 safe way at Level Three will protect and support our customers and employees.

We see more opportunity than challenge and we are not going to let a crisis go to waste. We see Level Three as a level at which we can only begin to restore our business. We really need to move to a Level Two and beyond quickly, as unfortunately there has already been significant impact. 

The road to recovery in a lower market in a high cost of capital business presents a longer term challenge.

The conditions that are really required are for the broader economy and the industry to be supported with “back to work” domestic stimulus packages to get people spending and investing and so the industry can continue to contribute to GDP and be an engine room of recovery. 

Longer term, the opening up of borders and in turn strengthening tourism and hospitality will be key.

As regards to our operations in Level Three? On the vehicle sales side of the business, selling and delivering in a “contactless” and remote fashion is nothing new for us – we do this under normal business circumstances for new and used vehicles, for different customers in different segments of the market - from retail to fleet, government and rental and across our network to support nationwide deliveries. The opportunity we have had is to get better and more efficient at operating in this way. We have been operating on-line sales in Level Four. Now we can deliver those vehicle in a contactless manner. 

Our on-line and contactless capabilities are much fitter now and we will continue to pursue improved capabilities as we go forward. Although this is just one of the ways we can conduct business and support the varying needs of our customers, it will not be the only way we transact business. We will certainly be exercising that capability more than we were.

In addition we anticipate that there will be a demand bias towards our top performing Ranger and Transit commercial vehicles as our primary industries and construction sectors lead our economic recovery and the need for moving goods remains.

Separate from our special offers we have also launched a peace of mind finance programme that offers a nil deposit plan and the first three months paid for by Ford and a further three months deferral option for customers if they want to take that up. This is designed to give our customers peace of mind as we all try and climb out of this challenge together. This in addition to the help we are offering existing customers financing through MyFordFinance.

On the service and parts side of the business, many of our dealers already offered pick-up and delivery services ahead of Level Four.  All 31 dealers within our national dealer body will be supporting the new pick-up and delivery service we are launching. We will have nationwide coverage for that. 

We have implemented robust hygiene and social distancing measures alongside contact tracing and will maintain this also when we get to level Two, when customers can enter our premises. At that point we will also have point-of-sale that will help orientate customers to social distancing and hygiene enablers we will provide.

Dean Sheed, General manager, Audi New Zealand

Reason for selection? Prestige sector giant. 

The opportunity that moving to Level Three provides is a partial move back to a full business for all our dealers nationwide. 

I say partial because it’s a move to contactless business across the operation, working within the Government/Worksafe health and safety guidelines and maintaining a major focus on keeping our staff and customers safe and supported as we transition back to normality.

Partial business also means some form of revenue to support the decimated financial results of March and April for both ourselves and our dealer partners. 

The businesses will be focussed on the physical servicing of customers’ cars and the ongoing virtual customer discussions in other areas of the business.

The challenges are clearly the new modes of doing business under the umbrella of Level Three: Stricter controls of cleaning and sanitisation across each business, contactless servicing, contact tracing of everyone within the business and the use of personal protective equipment by our team. All within the new health and safety guidelines implemented by the dealerships.

We are allowed to deliver presold cars to customers which must be handled according to the new protocols as well which will assist in driving some vehicle sales volume under Level Three.

This volume is likely to remain small until Level Two and only with Level One will all facets of the dealerships resume some form of normality.

Restoring the businesses fully will happen over time - many months - as the demand side of the car market is restored through normal purchasing by private and business customers. The economy needs to restore itself on the demand and supply side.

If you have been thinking of buying a new vehicle, now is a great time to purchase given solid inventory and very motivated dealers nationally.

Greg Leet, General manager Volkswagen NZ.

Reason for inclusion? Dominant European marque

It certainly won’t be normal trading and I’m certain we will all be in that position. Likewise, we will all be thinking that the safety of our customers and our staff will remain paramount.

We have been doing a lot of work with the dealers in respect to their ability to comply to Level Three trading conditions regarding personal protective equipment, sanitation and contactless services. Our dealers are well up to speed with that.

What kind of level do we need to get to before we contemplate normality? I think we need to be well out of Level One. Even the two levels below Three will still have social distancing, will still have people with very heightened levels of awareness around hygiene and sanitation. So while some of those will be relaxed from a Governmental view, I think society will remain pretty in tune going forward. 

There will be sectors of business that, I think, will be in a strong position after lockdown. There will be businesses that will be severely impacted. The tourism sectors will be under immense pressure. But I think industries like food supply and any essential services are going to be still very active.

Purely from a volume perspective, our forecast for the balance of the year would still have passenger at roughly two-and-half times our light commercial volumes.

We’re predicting anywhere between a 30 to 40 percent drop in the market. In a global sense, some markets are more severely impacted than that, and some might well be less impacted.

There are times when a car will be seen as a luxury. But we also see possibility that customers might decide to buy a new vehicle with the money they might have previously have kept aside for an overseas trip. They potentially might well want to travel, but locally, and that might involve a new car.