Car dealers take it on the chin

JOHN SELKIRK/Dominion Post

BUYER'S MARKET: Turners Auctions' Todd Hunter with a no reserve 2006 AM General Hummer H2. He's picking it will go for around $60,000 at auction.

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Pity the luxury car dealer. While for some buyers, money's still no object, the recession continues to drive some dealerships to the wall.

Last week Wellington stalwart Williams and Adams shut its doors and European car dealer Armstrong Prestige took over its Jaguar, Wanderer and Volvo franchises and some of its staff.

In Hastings, luxury car dealer Main Street European was put into receivership by creditors, owing at least $500,000. The principal creditors, two car financing companies, removed their stock. Meanwhile, luxury car company Chrysler filed for bankruptcy protection in the United States.

Perry Kerr, of the Motor Industry Association, anticipates more closures. The recession and price rises from an appreciating yen have left car yards scrabbling for business. New car sales in April were down 36 per cent on a year ago, a time of year when sales normally go up.

Used car sales were down 44 per cent on the previous year.

But big industry players maintain that the gloom has been overplayed, and that failed dealers are either victims of their own business plans or have been hurt by a shortage of used cars.

"The people that are going broke are the non-franchise car yards," Paul Ardin, group general manager of Jeff Gray BMW, said.

"All those people that used to import cars, they've vanished off the face of the earth ... Manukau Road in Auckland's a ghost town. The currency has moved horrifically, there is no logic in buying a Japanese import at all, whether you're buying a luxury brand or non-luxury."

New cars have faced several difficult months, but Mr Ardin says other parts of the business, such as used cars, servicing and parts are ticking along, and there has been a significant pick-up in business people buying cars on finance.

"Look at interest rates. Interest rates have halved almost in the last 12 months ... now you fund cars below 10 per cent and that changes the cost of running a car hugely."

Meanwhile, flickers of life have been detected in the new-car market.

Although industry sales data indicates a March upsurge was reversed in April, both Jeff Gray BMW and Armstrong Prestige in Wellington say they've enjoyed a discernable surge in forward orders over the last two months.

Pat Conneely, of Armstrong Prestige, said he took orders for 14 new Audis on his books with a price tag of $90,000 to $120,000 each.

"A lot of people sat on their hands last year and at the end of the day, while this recession has hit some parts of the economy quite hard, there's other parts it just hasn't touched," he said.

But even the luxury end of town is experiencing a drought of used cars. The shortage is partly due to a rising yen, combined with a lack of trade-ins as people put off buying a new car. And in Japan, imports are harder to source, thanks to new emission rules in New Zealand and increased demand from a newly frugal Japan.

"In many cases ... some 80 per cent of the cars we see going through auction just simply don't comply now with the New Zealand market place," said Graeme Macdonald, of Croyden Wholesalers in Auckland. "And that's put a lot of pressure on us as dealers to be able to source affordable cars in the sort of $7000 to $10,000 market sweet spot that we used to trade in."

As a result, used cars are getting more valuable.

"We're selling cars now that six months ago we might have sold for $20,000," Mr Ardin said. "They're now selling for $22,000 to $23,000 and yet they're six months older ... When was the last time used-car values increased slightly?"

Mr Macdonald thinks that while a lot of dealers have shut up shop, the industry was "over-supplied".

Some dealers, he believes, have been trading in the same way as they had done when cars were plentiful, banking on high volumes or margins.

Website Trade Me had also created more price-conscious buyers, and the change of "floor plan" or showroom financiers recently put the heat on some business' accounts.

Dealers who hadn't changed their business plans, "they were going to exit the marketplace no matter what," he says.

Meanwhile, love for the high-end car is still being felt, if not in the car yard, then at the auction house, where the recession is providing bargains. Todd Hunter, general manager of sales and marketing at Turners Auctions, says sales of luxury cars are "definitely" up, some from finance companies and some from repossessions.

At a recent auction, a 2005 Ferrari with 1000 kilometres on the clock sold for $255,000, down from a new price of $640,000. Another luxury auction is due in five weeks.

"It's certainly good days if you're in the market to buy a luxury vehicle, absolutely," Mr Hunter said.

Luxury leasing companies admit the number of people handing in their keys is rising, but deny they are being hurt.

"It's not a disaster," says Ingo Froelich, managing director of Mercedes-Benz Finance, which also handles Daimler and Chrysler.

"We have seen an increase in the number of our luxury car customers that have been affected by the financial crisis due to the heavily increased number of requested contract-restructurings."

But less than 30 cars were voluntarily returned or repossessed by his firm last year no more than before the financial crisis.

On the factory floor, car manufacturers are also preparing to defend their market share.

Hyundai has announced it is launching redundancy cover for buyers who meet certain conditions, enabling them to hand in their keys and walk away. Its New Zealand sales have risen 5 per cent year to date.

Mr Macdonald says the car industry as a whole is "incredibly adaptable" and he expects a slow return to health.

"It's easy to have a picture of gloom and doom painted, but I think the truth is that the car is a commodity that does wear out and as Kiwi businesses and Kiwi consumers, we're pretty resilient."