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Car Maintenance Media Release Hero2

MEDIA 30 April 2020

Vehicle Pricing

News media website Stuff, features an article on Covid-19’s impact on vehicle prices, with MTA Advocacy and Strategy Manager Greig Epps one of the commentators interviewed.

Second-hand car prices are tipped to fall sharply, driven in part by struggling rental car companies needing to offload some of the 50,000 vehicles they have in their yards.

Rental Vehicle Association chief executive Pim Borren said he had been advised that second-hand car prices could fall by as much as 30 per cent as the country came out of lockdown.

Rental car companies employ 2500 people and usually turn over $700 million a year.

But many of them derived 75 to 80 per cent of their business from international visitors and did not expect to see customer numbers return "in any real volume any time soon", Borren said.

Even some "brand names" in the industry might "not survive Covid-19 around the world", he said.

Rental car companies usually either leased their fleets or bought new vehicles from manufacturers under contracts that allowed them to sell cars back to those manufacturers at an agreed price.

But manufacturers were using "force majeure" clauses in those contracts to renege on those buy-back agreements, because of an expectation prices were about to fall, Borren said.

Fewer cars are likely to be imported, but a short-term glut may mean some bargains for consumers still in the market. "Suddenly you are left with a bunch of vehicles you no longer need because you have got no customers and you can't get the price you expected to get for them selling them back to the company.

"Everybody is struggling but the rental vehicle companies are really the meat in the sandwich." 

They were "absolutely" likely to have to release some of their vehicles, he said.

Motor Trade Association strategy manager Greig Epps believed it was too early to say what the second-hand market might look like coming out of lockdown.

Car dealers had had to bear the cost of cars – which were often bought on finance – sitting in their showrooms during the level 4 lockdown, and only some dealers were likely to open during level 3, he said.

There was also quite a lot of stock "sitting on the wharfs", Epps said.

Demand was expected to fall because of unemployment and cautious consumers deciding to hang on to their cars for longer.

But the supply of vehicles was also set to drop, he said.    

"In many instances new car manufacturers stopped producing overseas.

"We have also heard that activity in Japanese auction houses is a lot lower. So we are expecting used-import volumes in May and June to be about 25 to 30 per cent of normal."

One upshot might be an uncertain market as dealers tried to work out where prices would settle and how their competitors were responding to the changed market conditions, Epps said.

"A couple of weeks' ago I was of the mindset that there would be quite a stockpile needing to be sold off and that prices would be quite low.

"But dealerships may be able to look at their stock levels, realise they are not purchasing so far out into the future now, and deal out their stock in a more controlled manner."

A glut of rental cars hitting the market would have an impact if that happened, Epps said.

"Rental cars don't normally come in such a lump."

Borren said New Zealand airports had generally not being offering rental car companies any relief on their airport rents or on arrangements under which they commonly charge rental companies a percentage of their prior-year earnings as fees.

"Our members have individually informed us that the airports have given no indication that rent relief is going to be given, even though the industry players have almost no income," Borren told Parliament's Epidemic Response select committee earlier this month.

Conversations had since started with Auckland Airport, he said. 

Borren said that while airports might be legally able to keep charging rent, they might have "an underlying moral obligation to consider the relationship of each contract and moderate the terms and conditions accordingly".

Airports in Australia had been far quicker to offer relief, he said.