Colonial remains strong amid economic ‘crunch’ • Autotalk

Colonial Motor Company says it remains in a “strong and stable” financial position despite operating in a recessionary environment.

The company has published its 2024 annual report, which follows the release of its financial year results. For the year ending June 30, trading profit after tax was down 41% to $17.88 million, while revenue rose 1.6% to $1.01 billion.

Chief executive Alex Gibbons says the current economic environment was “inevitable” after record government spending during Covid-19.

“The company was well positioned to capitalize on that period and our dealerships, whether car, truck, or tractor, made hay while the sun shone. The economy was fueled by deficit spending, and with it, the automotive industry boomed.”

Gibbons says “the crunch” has finally arrived, and the market now “is in stark contrast to that of the previous three financial years.”

Colonial continues to represent major brands including Ford, Mazda, Kenworth, DAF, and agricultural brands like New Holland and Case IH. Gibbons added, “Sales and service revenue remain robust, aided by the long-awaited arrival of heavy-duty trucks to meet a backlog of orders.”

The company has invested substantially in franchise facility upgrades and property acquisitions. Work continues on the JAC Motors brand in New Zealand.

Car dealerships

Gibbons notes that a challenging market has been amplified by new entrants and near-normal supply chains, which added “significant pressure” to an already subdued market, down 26% in the first half of the year.

“Our car dealerships are under pressure to balance a need to remain profitable while tackling high operating costs, weakening margins, and subdued new vehicle demand.”

Gibbons also commented on the impact of the previous government’s Clean Car Discount scheme, stating it “distorted” the battery electric vehicle (BEV) market, which has since plummeted.

“The cost to the consumer is now often than lower when the rebate was in effect,” Gibbons says, noting the decline in residual values ​​of BEVs has negatively impacted the used car market. However, hybrid and plug-in hybrid sales have been less affected.

Gibbons added that while EVs will play an increasingly important role in the future, “the ambitious and unrealistic targets and attempts to manipulate consumer choice have significantly done more harm than good.”

The removal of the Clean Car Discount also affected internal combustion engine (ICE) vehicles. “Overnight, retail values ​​of these vehicles dropped, having a marked impact on residual values ​​and triggering the immediate revaluation of used inventory.”

Looking ahead, Gibbons says the Clean Car Standard, which taxes vehicles based on CO2 emissions, will continue to push importers to lower their vehicle emissions. “This alone will incentivize a reduction in vehicle CO2 emissions for vehicles entering New Zealand.”

Meanwhile, Gibbons remains optimistic about opportunities for buyers in the current market. “If there is an upside for the consumer in the current environment, we now operate in a buyer’s market.”

Trucks and tractors

Southpac Trucks, a Colonial subsidiary, had a strong trading year but continues to reduce inventory to more manageable levels after supply chain challenges caused by Covid-19.

“Southpac experienced a significant bulge of long-awaited customer truck arrivals,” Gibbons says.

“That bulge pushed truck inventory to record levels and was one of the predominant contributors to the company’s increased borrowings and interest costs.”

“While some customers had been waiting up to three years for their trucks to arrive, local bodybuilding capacity simply could not be upscaled to meet such a spike in demand; not just from Southpac but from numerous other truck operators as well.”

Colonial’s tractor and agricultural equipment dealership, Agricentre South, continues to face challenges in a “depressed market”. National tractor sales are down 28% this calendar year, with the South Island market suffering a steeper decline.

Property and strategic direction

Gibbons says several developments have been reprioritized in response to changing economic conditions. Significant investments have been made to rebuild and refurbish dealerships, with the Fagan Motors (Masterton) showroom set for completion in early 2025.

Additionally, plans are underway for a greenfield development in Palmerston North to support Southpac’s heavy truck operations. Gibbons also revealed that Colonial acquired a dealership property in Nelson, strategically located near the MS Ford facility.

Outlook

Gibbons says a weak New Zealand economy will continue to affect retail markets for the rest of the year, with subdued demand for new vehicles across all segments.

“Our expectation is that new vehicle demand is likely to remain subdued, with the potential for further softening this half year.”

He highlights that Ford dealers have maintained strong brand loyalty, while Mazda is realizing its product range to focus solely on SUVs and passenger vehicles after withdrawing the BT-50 ute from the market.

Despite the economic challenges, Gibbons says Colonial’s dealerships are well-prepared to face the current headwinds, and the service and parts business remains “second to none.” He also expects Southpac Trucks’ inventory levels to decrease as customer orders continue to be delivered.