Pulling out all the stops
Ongoing disruption to overseas manufactured parts and other goods is expected for the rest of the year as outbreaks of Covid-19 impact factories and shipping snarl-ups continue.
Automotive parts suppliers have responded by pulling out all the stops, boosting stocks and making sure they stay in constant communication with suppliers and customers. “Repco’s deep commitment to our customers and the industry has never been stronger,’ says Repco Executive General Manager, Jonathon Maddren. ‘As the international situation worsened in 2020 it was clear our supply team had to be more focused than ever before to secure reliable inventory for our customers. Manufacturing and shipping disruptions are not just coming from Asia, charges are rising, raw material supply is weaker, clearing vessels at Ports of Auckland is taking anywhere between 2-3 weeks, whereas it used to take 2-3 days and risks of global supply disruption from the US to New Zealand are at the highest levels we have seen for a long time.
“We are aware others may be hurting but for Repco’s partners there’s no immediate cause for alarm. When it gets tough, our established domestic and international relationships with suppliers and freight partners really bear fruit. These partnerships are a critical link in the overall supply chain and by working collaboratively and proactively we have maintained a very high standard of supply and services to the New Zealand market throughout this period. In fact, Repco NZ recorded its highest ever volume of containers received in full year 2020 with approx 10 percent more volume inbound, despite the growing global shipping challenges. And in January our strong relationships with freight partners have enabled us to increase our inbound containers 300 percent in anticipation of a peak in factory output issues around Chinese New Year and closed borders. These relationships have also enabled us to work through excessive and fluctuating International freight costs more effectively – which reduces cost risk for our customers too.” “We have weathered the storm to date and for the foreseeable future but we’re continuing to assess the situation day by day. Ultimately there is likely to be some level of impact industry-wide. Quality alternatives in our ranging may be able to buffer that.”
The head of major automotive parts distributor Bapcor sees his company as integral to the nation’s recovery effort. Executive General Manager Martin Storey says, “We want to do the right thing, we are all in this together. Our people feel strongly that we have an obligation to New Zealand to help the country get back on its feet. One way is to keep people and their cars moving.” He says importers’ biggest issue is getting stock into the country. “Everything is taking longer to get here.” When Covid-19 hit the world, ships returned to their home base. It’s taking time to have shipments rebooked and for vessels to get back on a schedule. In the meantime, demand for goods has grown, so many ships are now overbooked and backlogged. This has a knock-on effect for their reloading and turnaround when they finally reach their destinations.
Then there’s the problems in the factories. “For example, one of our American battery manufacturers has had its workforce hit by Covid-19 infections and reinfection. It has slowed down production and now there are many millions of batteries on back order. Manufacturing in China is also very lumpy.” Martin says some manufacturers have been forced to ‘short-ship’ on orders. “So, where we order 10 pallets of something, we may only get six. We expect this whole area to remain an issue for the forseeable future and we are working hard to ensure we keep the shelves full, and customers supplied. This includes increasing stock orders but also looking at alternative supply options”. The Auckland Ports unloading backlog has forced some ships to divert to other ports. “One ship that was detoured to Northport cost an extra $1,800 per container for freight. We had 10 containers on that ship.” He says the company doesn’t adjust pricing for customers based on a single incident and that while international freight costs have risen by around 30 percent in the past year, this is largely being absorbed by the company. So too, are the local freight price increases.
Autohub Chief Executive Frank Willett says container shipping disruption is a global issue and the associated costs are “exorbitant”. However, the RORO (roll-on roll-off) shipping schedules have not been significantly impacted. “Most vehicles are brought into New Zealand on RORO ships, just 15 percent are in containers. Most of these have been rebooked onto RORO ships but it may have added to the transport costs. For instance, cars destined for Dunedin in containers have to go by RORO to Christchurch as there is no RORO receiving facility at Port Chalmers.” He says after the lockdown some of the vehicle importers began buying locally on the ex-rental market but are now back in the Japanese auction rooms. Demand for used vehicles has stayed strong and there was a buying spree at the auctions late last year and these vehicles are now coming into the country. “At the start of 2021, the ports, compliance centres and transport companies were very busy. This trend seems likely to continue over the next few months as the NZD strengthens against the Japanese YEN,” he says.
Pressure on used car market
2021 is likely to be a boom year for those dealing in used cars with prices expected to keep rising, particularly with the new green car standards coming into effect next year.
Good quality used cars are already harder to source, here and in Japan. This has put pressure on pricing. Used car prices rose steadily last year – particularly in the last quarter. On average, over the year the prices rose by around 10 percent, more for larger vehicles. In the last quarter, prices rose by 24 percent for small cars, 15 percent for medium cars, and large vehicles were up by 12 percent. Add a growing demand for used hybrids and EVs to the mix, and we can expect much steeper increases.
A range of factors are in play, but it basically comes down to supply and demand, and the new requirement for all imported vehicles to be fitted with ESC.
The thousands of Kiwis who returned home to live during the pandemic helped keep the market strong, as did the abrupt halt to overseas travel which saw locals spend their spare cash on vehicles and other big-ticket items.
But the loss of immigration and tourism meant fewer cars were brought into the country last year (used imports were down by 27,000 and new imports were down by 20,000).
Toyota New Zealand’s General Manager of Sales, Steve Prangnell, is picking new car sales will be close to last year’s 119,600, perhaps a little higher - 120,000 to 125,000. “We have had a good start to the year; leasing, government and retail sales are all still strong. We are a little bit concerned about supply as we see Japan porpoising up and down to control Covid-19. And there is that nagging worry that there may be a further serious outbreak in New Zealand.” He says another lockdown would be devastating. “The cashflow implications are massive. Last year we went from turning over $4 million a day to zero.”
For the used car dealers, the loss of the ex-rental fleet means more stock must be sourced from Japan this year – where the market is tightening thanks to increasing competition. Autohub Chief Executive Frank Willett says around 200,000 cars a week are sold via auction and other sales platforms in Japan, but less than 20 percent are suitable for the New Zealand market and this will be further limited when the new green car standards come in. “Auction prices have been high and firm and there is difficulty in buying of late.” The increasing competition now includes Australia, which recently opened its market to a limited number of used imports from Japan. “It’s only a few thousand vehicles at this point, but they can pay more than the New Zealanders,” he says. He believes the new clean car standard for low emission new and used imports could see auction prices for hybrids and EVs increase by 30-40 percent. Industry predictions are for ongoing interruptions to new car production, thanks to Covid-19. This is expected to put more pressure on the used market from people unable/unwilling to wait for a new model to arrive. The economy, while going relatively well, is expected to tighten this year, which may lessen the demand for new cars but increase the pressure on the used car market - which will be reflected in the pricing.
In general, sales of new and used vehicles were down across the country last year, with rural dealerships less hard hit. A few areas (Timaru, Oamaru and the West Coast) actually did better than in 2019. Auckland continues to reel after four lockdowns, however demand is still strong for high-end vehicles. Supply has become a problem for some brands, thanks to delays in production overseas.
West Coast winning
On the West Coast, registrations for new and used imports were up significantly on 2019 (+ 84 percent). The head of Greenfield Motors in Greymouth, Ross Brown, says, “People with money have still got money. Instead of going overseas they are buying new cars.” Ross runs a rental car fleet as well as his workshop and dealership. “We had around 60 rental cars, but I sold off the older and cheaper ones. It’s still operating in the background – I kept around 40 cars. But we’ve lost the cream that was provided by overseas tourists.” He says his biggest problem is finding good secondhand cars to sell.
North Shore strong
Autostop North Shore is a used car dealership and Manager Adam Brown says prices are going up. He said he actually enjoyed the break provided by lockdown. “It got rid of the tyre kickers. Showing cars by appointment only really worked. We’ve been flat out for the last six months.” Southern sales In the tourist centre of Queenstown, sales have been buoyant. Manager of the Macaulay Motors Queenstown branch, Steve Rhodes, has been busy since lockdown. “Only a couple of tourist businesses could not proceed with their purchase and this involved just one or two cars. Sales have been good. Local tradies have projects on the go and there’s been an influx of new arrivals who are now running their overseas businesses from Queenstown.” He says it’s been difficult finding good quality used stock and there are about half the usual number on the yard. Macaulay’s Invercargill-based Dealer Principal, Tim Rabbitte, says the company lost a month of sales to lockdown so overall sales numbers are down. “But with used cars selling for more, a higher gross in new cars, and good sales on premium products, particularly Mustangs, we expect to come out of the year fairly well.”