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Motor industry forecast

The mechanical and collision repair industry appears to be bouncing back from the impact of lockdown in April, according to motor trade accountant Peter Morton.

Inside cover Hammonds
The Cambridge-based accountancy firm Herbert Morton has a large number of MTA service stations, repairers and dealerships on its nationwide client list.

Peter says the repairers are largely back on track, even those in central Auckland. He expects their 2020 turnover to be very similar to 2019 – perhaps about 5 percent down thanks to the pandemic lockdown.

“Most service stations are doing 75 to 95 percent of their usual trade, except for those in tourist areas.” He says the smart operators are making sure they get more out of the customers who do come through the doors. In the tourist areas, he’s advising all clients to make the most of the wage subsidy to hang on to staff until it’s clearer what the ongoing work demands will be. “It’s very hard to replace good qualified staff,” he says.

Peter describes himself as an ‘optimistic realist’.

“I don’t think the repair sector will suffer in the long term and we need to be wary of the very negative media and economic forecasts. In the past, in tough times like the GFC, people kept their cars for longer, so they needed to keep them repaired, but they bought fewer new cars.”

A lack of demand for new cars may match with the drop in world production of new vehicles during the pandemic. Peter reckons dealerships will put more energy into their parts, servicing, and used car sales - and most businesses will come through.

“Dealers should be okay if they have the fundamentals right: good balance sheets and good backing.”

Keep the cash flowing

In general, with a strong agricultural economy keeping most regions going, he does not expect the Covid-19 interruption to be long-lasting.

“The wage subsidy really helped most small businesses in the motor trade sector to get through April and May, and now it’s all about keeping the cashflow going.

Peter says the smart operators took up the IRD small business interest-free loan that was on offer and either used it to buy a piece of much-needed new equipment (and also got the new asset tax write-off), paid their immediate expenses, or kept it in reserve with the intention of paying it back at the end of the 12-month term.

“It’s been a real struggle for businesses to get money out of the banks – so the interest-free IRD loan filled that gap,” said Peter.

While the news media is reporting on companies such as the Warehouse, Burger King, H&J Smith, Bunnings and others carrying out major restructuring, Peter’s view is that the fault lies not with Covid-19 but with the business model.

“Companies that are not keeping pace with technology, consumer demand and spending are the ones that are folding or struggling.” He says MTA members should review their balance sheets, make sure they have access to enough cash or finance to see them through at least a month or two of a downturn, and review their charge-out rates.

“A fair price for a fair job, is something to live by”, he says.