Company chairman predicts policy’s penalties on more polluting light vehicles will create surge.
The clean car standard will create an incentive to import higher-emitting models before it starts on January 1.
That’s the view of Ashley Waugh, chairman of the Colonial Motor Company, who predicts the government’s importer-side scheme will lead to a pre-launch rush in a similar way the clean car discount had on registrations of similar light vehicles ahead of its full implementation on April 1.
The clean car standard will create another incentive to “register vehicles before the deadline,” warns Waugh, pictured.
“We anticipate further disruption as importers grapple with the legislation, and adjust vehicle mix and associated prices over the coming year as they endeavour to strike the right balance and avoid the consequences of hefty penalties.”
He adds: “At this time in 2021, we forecast continued strong demand with the potential for disruption and ongoing uncertainty.
“In September, we were still in the aftermath of the clean car tax that came into effect on April 1. The introduction of that inevitably front-loaded registrations of ICE [internal combustion engine] vehicles into the first quarter of 2022. As predicted, we have seen the new-car market recover as the industry continues to fulfil a backlog of orders.”
As for the near-future outlook, Waugh says: “At present, demand for desired vehicles exceeds available supply and monthly sales are dictated by shipping arrivals.
“While enquiry remains strong, it’s less than it was. This trend is expected to continue into at least next year with the difference being the likelihood of an economic shock now appearing greater, and the cost of doing business is on the rise.
“The increasing cost of living and rising interest rates are expected to further impact consumer confidence and take some wind out of the automotive industry’s sail – this, as discretionary incomes come under increasing pressure.
“Add to those pressures a weaker New Zealand dollar leading to significant retail price increases, and early 2023 looks likely to be a more challenging trading environment.
“Back to today and earnings for the first quarter of this year remained robust. With greater headwinds and continued uncertainty, it’s not unexpected that we are tracking behind last year’s record result. If we continue to avoid any major shocks, we anticipate a solid result for the current half-year.”
What follows is an edited version of Ashley Waugh’s presentation to Colonial’s shareholders at their annual general meeting in Wellington on November 11.
Results for 2021/22
“It gives me great pleasure to celebrate the company’s record result that was announced to shareholders in August. Trading profit after tax for the 2022 financial year was $33.3 million, up 19 per cent on the prior year.
“A record dividend of 62 cents per share was paid to shareholders, which equates to 61 per cent of trading profit after tax. Overall, this represents an exceptional and rewarding result, and the credit belongs to our staff across the group.
“The market and trading environment for cars and light commercials, as well as trucks and tractors, was favourable for a good portion of the past financial year. However, the obstacles that needed to be overcome to capitalise on this strong demand were numerous and substantial.
“Our people have worked incredibly hard, remained optimistic and, as a result, they excelled. Our dealer principals and their staff have served the company exceptionally well.
“This was particularly so during the trying and testing Covid-affected periods, and the cascading global impacts on supply and labour shortages. Alex Gibbons and the new Colonial leadership team have done an outstanding job, hitting the ground running from day one, and bringing with them a gust of fresh air and enthusiasm.
“It has been challenging and pleasing for the board to see through a three-year programme of leadership succession.
“While trading conditions have been positive during this period, this in no way diminishes the enormity of the challenge for a new team to take over the reins of a large and complex business. At the end of the day, it is they and our DPs who lead the business and are charged with delivering the results.
“The cyclical nature of the automotive business will bring us more difficult times. But I am confident our new leadership team will respond with the same vigour it has displayed this past year.
Focus and direction
“The company has a robust balance sheet, a substantial property portfolio and long-term strategic partners in PACCAR, Ford, Mazda, Case New Holland Industrial and Kubota, along with some newer brand associations we value highly and continue to foster.
“The new relationship with Case New Holland Industrial has developed well since it assumed direct distribution from Australia of the New Holland and Case tractor brands directly into our Agricentre South dealership.
“Colonial has a well-developed strategy and a focused management team with an eye for growth and who embrace change. Pursuit of growth and change are not sought at the expense of earnings quality, and our long-term goal of delivering sustainable profits and dividends.
“We take a cautiously optimistic approach that prudently manages the balance sheet, allowing the company to grow alongside our existing partners, to take on new opportunities, while maintaining strong financial discipline should we encounter more challenging times.”
Changing world
“Our world is always changing and, without sounding too pessimistic, the mid-term economic outlook appears increasingly fragile. This is against a backdrop of sustained global unrest and stubbornly high inflation. These both have potential consequences for New Zealand and the global economy.
“Economic stimulus, global events, low unemployment and restricted supply have provided favourable trading conditions for the past two years. Consequently, the social and economic price for persistently high inflation will eventually fall due. When this might happen and the severity of any impacts remain the topic of debate, but history tells us the tide can turn quickly.
Going electric
“The global shift in direction to electrified vehicles is as much about reducing emissions as it is about competing and ultimately dominating a new era of technology.
“The race to secure supplies of raw materials and increase production capacity to manufacture EVs will continue to play out over the next decade. This race will likely and frankly is seeing the emergence of a number of Chinese brands as credible alternatives to traditional names, particularly in the value segments.
“This search for value is not surprising as the entry price for a new EV vehicle continues to be a significant step up from an equivalent ICE vehicle. This price ‘shock’ was expected to be moderated by improving technology and the benefits of scale as production ramped up.
“However, this expected reducing price scenario has been swallowed up by key raw-material scarcity and its attendant increasing prices.
“The brands we are partnering with are all investing in next-generation product and technologies that will continue to come online over the next few years and beyond. There will continue to be supply challenges, particularly on the availability of electric product globally, and that will cause a few bumps on the road. However, for our staff and as a company, it’s an exciting time embracing and preparing for a new era of automotive technology.
“The New Zealand industry is having to contend with targeted intervention via the clean car tax and soon-to-be-implemented clean vehicle standard. The existence of clean-vehicle policies is of benefit in the quest to secure a supply of EVs.
“However, the haste to activate this new legislation, combined with very ambitious targets, has created unresolved challenges for a small automotive market like New Zealand. This is proving a particular challenge in a world competing for a limited pool of EVs.
“Risk remains around even further legislative changes to the just-introduced clean car framework that might impact on the near term. This could affect the light commercials that tradies and farmers favour and rely on. The political climate is uncertain in this area and any move that impacts New Zealand’s productive sector will eventually flow through to consumer confidence.”
Board changes
“The election of director John Hutchinson was brought about by the retirement of Matthew Newman from the board. Matthew has served CMC for 36 years and been guiding our South Auckland dealership representation over those near-four decades. This was initially for Ford, then adding Mazda and more recently Isuzu, Citroën, Peugeot and Suzuki.
“He has brought to the board table his energy and enthusiasm, experience and empathy. Always a strong performer at dealership level gave Matthew the credibility to contribute significantly on matters of strategy, financial performance and people development. Matthew, thank you for your contribution. You will long be recognised as an integral part of our history and DNA.”
Keyword: Clean car standard ‘rush’