Brakes are off for just-sold VTNZ

Last Saturday I shot down to the local VTNZ station to get a new warrant of fitness for my apparently unsellable Moto Guzzi.

It's often forgotten that a private seller is required to provide a WOF no more than 30 days old unless a vehicle is advertised for sale "as is, where is", where effectively the buyer takes on the risk.

Sitting in Thorndon VTNZ station, waiting for a technician to see if my big V-twin was fit for another six months of riding, I witnessed a great example of what marketing gurus call cross-selling; something the McDonald's empire does so slickly with the innocent little phrase: "Would you like fries with that?"

In this case the effulgent young lady behind the counter was offering each WOF or registration customer the ability to also get a vehicle check-up. For just an extra $20, VTNZ will perform 14 under-the-hood checks to see if anything's going to bite you on the bum, the sort of risk that can be mitigated with a little preventative maintenance.

She also sweetly, but with an impressive efficiency, was focused on acquiring the email addresses of her customers so that VTNZ could give them warning when their documentation was about to expire. On the one hand a genuinely useful thing to know - on the other hand a stunningly effective channel through which to undertake electronic direct mail.

If you think VTNZ has given itself a pretty good makeover in terms of retail efficiency, you'd be right. However, the motivation for such a market-facing makeover hasn't just come from without; it came from within as well. Not only is it competing with the market, but it also has shareholder-imposed constraints on the services it can provide.

VTNZ has been wholly owned by the Motor Trade Association (MTA) since it bought it from the government back in 1999. The MTA is basically the member organisation and lobby group of used car dealers, mechanics and garages. And therein lies the rub.

The MTA has throttled back the range of commercial activities VTNZ can undertake, because it doesn't want its main investment asset competing with the activities of its members.

Six months ago I penned a column on this, noting how matching the right owners with the right assets was crucial in order to maximise economic benefits for the country.

VTNZ, I claimed, didn't have the right owner. Little did I realise this was about to change. Last week it was announced that the MTA had done a deal to sell 60 per cent of VTNZ to the world's largest inspection provider, German company DEKRA, for $36 million. Many saw this as a kneejerk response to the new regulatory environment, where WOFs will be issued for twice as long and the commercial vehicle COF (certificate of fitness) market will be opened up to new entrants.

The implication here was that MTA was well shot of the asset, and perhaps DEKRA was a mug to buy it. In fact, the crafty Germans are probably on to a good thing - and the key is in the majority shareholding.

As the majority shareholder, DEKRA will finally be able to allow VTNZ to realise its potential. Rather than pussyfooting around the edges, VTNZ will now have the ability (and the encouragement) to go hard on broader vehicle services.

No longer restricted by the MTA, you can expect a DEKRA-owned VTNZ to start offering a wider range of services immediately, including car servicing, car management and emissions analysis.

VTNZ have an enviable reputation for being uncompromising on vehicle standards, and a substantial network of 84 vehicle inspection workshops around the country.

You couldn't ask for a better infrastructure base from which to offer an expanded range of vehicle servicing.

Not only is this good for the broader economy in terms of jobs and growth, it's also potentially a great opportunity for DEKRA. The $36m just paid for its majority share of VTNZ values the whole company at $60m. No information has been released about earnings, but we know last year VTNZ enjoyed revenues of $88m.

If we assume it delivers earnings before tax of 8.5 per cent ($7.48m), this would mean MTA sold the business for around eight times its earnings.

There's a very good chance that the newly liberated VTNZ will be able to deliver much improved earnings, quite possibly past 10 per cent, lifting the value of the asset.

The question is, will the additional income VTNZ makes from its unshackled market remit more than compensate for any decrease in WOF and COF income? If DEKRA chooses to take up the option to buy the remaining 40 per cent for $24m in three years' time then it's fair to assume the answer is yes.

Meanwhile, the fact that DEKRA didn't acquire 100 per cent up front suggests it was shrewd enough not to sign up to an "as is, where is" deal. Mike "MOD" O'Donnell is a professional director and eCommerce manager. His Twitter tag is @modsta and he's failed more than his fair share of WOFs.