Business activity statistics - Part 4: Motor vehicle industry 1998

Article 4.1:
The motor vehicle industry⁽¹⁾

A number of recent events have impacted on New Zealand's motor vehicle industry:
 

• import tariffs on motor vehicles have been axed
• the Japanese yen has been deflating against the New Zealand dollar
• parallel importing of motor vehicles and other commodities began
• local car assembly plants closed
• interest rates hit a 30-year low
• the insurance company, AMP, demutalised providing policyholders with gains
• there was a further round of tax cuts
• there is increased competition in the fuel retailing industry due to new companies starting to trade.

Vehicle numbers on the rise

There were 2.7 million licensed vehicles in New Zealand as at December 1998. About two-thirds of these vehicles were motor cars⁽²⁾. The number of cars licensed throughout 1998 was about 4 percent higher than at the same time in 1997.

During 1998, there was a general increase in the number of new cars being registered, growing from about 10,000 registrations in January to 16,000 in December. Of these some 60 to 70 percent had previously been registered overseas. In recent years, New Zealand has seen a major shift away from the purchase of new vehicles in favour of used ones. Of the 50,000 to 60,000 cars which changed owner each month during 1998 about half were privately sold, about one-fifth were sold to motor vehicle dealers, and the remainder were sold by dealers.

Figure 4.1
New and ex-overseas motor vehicles registered

It is estimated that 80 percent of new car sales were to "fleets": anyone registered for GST or able to claim a fleet discount because of their association with a particular group. Sales to rental car companies accounted for over 10 percent of the passenger car market⁽³⁾.

Retail sales of motor vehicles decline

The trend in retail sales for the motor vehicle retailing storetype has been in decline since early 1996, apart from a short upturn in the early part of 1998. The general fall in vehicle prices over the period is probably one of the main driving forces behind the decline, as other associated data shows there has been a rise in the number of vehicles in New Zealand. The cost of buying both new and used cars fell, with new car dealers forced to drop their prices in order to compete with cheap used imports and with the ever-increasing pool of new models available.

Throughout 1997 and 1998, retail stocks of motor vehicles have shown decline each quarter, when compared with the same quarter of the previous year. This might be a reflection of higher demand for motor vehicles given their relatively low price, or a lack of retailer confidence. The closure of local car assembly plants in favour of imported vehicles may have led to a change in stock holding patterns by dealers. The sales to stocks ratio (calculated as stocks divided by sales) for the industry fell sharply during the first three-quarters of 1998, hitting a three-year low in the September 1998 quarter.

Figure 4.2
Motor vehicle retailing sales



Figure 4.3
Motor vehicle services sales

Figure 4.4
Motor vehicle sales to stocks ratio

Tariffs axed and parallel importing began

In its 1998 Budget, presented on 14 May, the government made two announcements which had significant consequences for the motor vehicle industry. The first was that import tariffs on motor vehicles were to be axed, effective immediately. The second announcement was a decision to lift the ban on parallel importing. Under parallel importing, retailers can sell a range of goods which were previously subject to sales restrictions. This affected certain lines of clothing, footwear, compact discs, televisions, cosmetics and perfumes, as well as motor vehicles.

Prior to the Budget about half of all cars were duty-free, either as imports from Australia or as locally-assembled models. Others carried duties of up to 22.5 percent. With tariffs gone it was cheaper to bring cars into the country, and this was expected to lead to cheaper prices for consumers.

The tariff cuts also made it uneconomic to produce cars in New Zealand, resulting in the closure of local car assembly plants. Motor vehicle import figures reflect this move away from local car assembly. At the beginning of 1998, the numbers of motor cars being imported into New Zealand was lower than for the corresponding month in 1997. However, by the end of the year import figures were showing strong growth of between 20 and 70 percent compared with the same month of the previous year. Import figures as at December 1998 equated to the levels recorded in mid-1996.

Figure 4.5
Number of cars imported into New Zealand
 

Manufacturers switch to wholesaling

Businesses which previously assembled cars are now importing ready-made vehicles rather than vehicle components, and consequently have been reclassified from manufacturing to wholesaling in terms of their main industrial activity. This is reflected in Wholesale Trade Survey figures, which show an increase of 33.5 percent in seasonally adjusted motor vehicle sales in the December 1998 quarter compared to the September 1998 quarter. This is the first increase in seasonally adjusted sales recorded since June 1997. Wholesale trade motor vehicle stocks also recorded growth in the December 1998 quarter, for the first time since March 1997, with the actual value of stocks being 9.1 percent higher than in the same quarter of the previous year.

Yen falls

The cost of importing vehicles from Japan has been affected by movements in the exchange rate. The average daily exchange rate for the Japanese yen fell 19.9 percent during 1998, with $1 New Zealand worth 61.4 Japanese yen in December 1998. This partially offset the price reductions arising from the abolition of tariffs, but the net effect was still that the consumer paid less for vehicles. This is reflected both in the motor vehicle retailing price deflator and the Car Price Index. When compared with the same quarter of the previous year, both price measures have generally been declining since mid-1996. Between the December 1997 and December 1998 quarters, the Car Price Index fell 4.1 percent.

Figure 4.6
CPI Car Price Index

Lower interest rates and tax cuts fuel spending

First housing mortgage rates as reported by the Reserve Bank fell to 6.5 percent in December 1998, the lowest the rate has been since June 1967. Mortgage rates peaked at 20.5 percent in June 1987. Base lending rates also hit a 30-year low, falling to 8.6 percent in December 1998. This may have encouraged consumers to purchase larger items such as motor vehicles, while repaying debts was relatively cheap. Also likely to boost consumers' willingness to spend were the tax cuts which took effect from 1 July 1998 and the demutualisation of AMP in June 1998. Both of these events resulted in extra disposable income for some consumers. According to the June 1998 BERL Forecasts, the AMP share float is estimated to have increased the potential wealth/spending capability of New Zealanders by approximately $2.6 billion - equivalent to 3.5 weeks of total retail spending - although it is likely that a lot of that money will stay tied up in shares, or be used for debt reduction.

Fuel costs less

Some new petrol retailing companies commenced trading between April 1998 and December 1998, resulting in petrol price reductions. To date, the new companies are only operating in various North Island centres, although at least one has plans to move south in the future. Consequently, petrol price reductions have been most noticeable in the North Island. A petrol price survey conducted by the New Zealand Automobile Association in late January/early February 1999⁽⁴⁾ showed that the standard price for 91 octane fuel in much of the North Island was 79.9 cents per litre, while the corresponding price in the South Island was 82.9 cents per litre. However, the standard price of fuel was just 78.5 cents per litre in Hamilton where two new petrol retailing companies are operating. The fuel price reductions are reflected in the retail trade price deflator for the motor vehicle services storetype. This deflator recorded a decrease in each quarter of 1998 when compared with the same quarter of 1997. Within the motor vehicle services storetype, almost two-thirds of sales are by businesses classified as automotive fuel retailers. Fuel retailing sales include sales of food, drink and the other non-fuel items which are increasingly available at service stations.

Car servicing costs also fall

Changes have recently been made to the regulations regarding the issuing of warrants of fitness. Although sales by automotive vehicle repairs and servicing businesses show a generally declining trend over the last few years, there was a bit of an upturn apparent during 1998. This is likely to reflect the extra maintenance some cars have needed to ensure they meet the higher standards.

Figure 4.7
Automotive electrical services
 

Figure 4.8
Automotive repair and services nec

Summary

The motor vehicle industry has undergone some significant changes in recent times. Separately identifying the impact of each event on car numbers and prices is not easy to do. However, the net effect of all the changes is an increase in the number of cars on the road, and a fall in the value of retail sales of motor vehicles. This is most likely to be due to a fall in car prices since there is little evidence of lower retail sales volumes.

⁽¹⁾ This article was written by Anne Holwell, Business Statistics division
⁽²⁾ Source: Land Transport Safety Authority.
⁽³⁾ Source: New Zealand Auto Industry Fact File 98.
⁽⁴⁾ These results were reported in the March 1999 edition of the Automobile Association's magazine "Directions".


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