Car market crash puts buyers in driver's seat

Imports from Japan are blamed for the oversupply of used cars, but dealers say the trade in foreign-sourced vehicles is slowing. Picture / Greg Bowker

Used car buyers are in the driving seat after a dramatic slump in the market.

There were more than 10,000 fewer used car sales last month than in May, creating a winter glut in an already depressed market awash with Japanese imports.

Although the car market is cyclical, the drop in sales is almost twice the size of the fall at the same time last year.

No official tracking is done of price changes in the used car market, but the Weekend Herald used a price analysis done by the Dog & Lemon Guide - a guide for car buyers - that showed recent sellers losing anywhere between half and 87 per cent of their car's value.

In some cases, this cost sellers as much as $30,000 on cars less than five years old.

The analysis found depreciation rates consistently outstripping those on similar cars five years ago.

The depreciation rate for a new car such as a Ford Falcon has almost doubled in the past five years.

Industry members say the buyers' market has been caused by a combination of over-supply (blamed mainly on Japanese imports) and a lack of demand because of the cost of petrol, the economic slowdown and bad winter weather.

David Vinsen, chief executive of the Independent Motor Vehicle Dealers Association, said the market had been "soft" for some time.

"Right now, all the planets are in alignment for the car buyer," said Mr Vinsen, who represents used import dealers.

"It is all the wrong way around - you could probably export cars back to Japan and make a profit selling them there."

Andy Cuming, spokesman for the Motor Trade Association, whose members include used-car dealers, said the drop in activity meant the market was probably "pent up".

"If transactions are being held back for whatever reason, that means sales are overdue. That is good for the buyer, but it is probably a ray of hope for the seller too."

Both men predicted the market would soon correct itself, as official figures showed the number of imports coming from Japan was declining.

The Weekend Herald inquiry found industry members also blamed secondary factors for keeping buyers out of the market.

A tightening of finance company lending rules after the collapse of Provincial Finance and National Finance in the past two months had knocked the "finance customer" out of the market and was hurting car dealers.

A strong new car market was said to be luring buyers away from the top end of the used car market.

And there were signs that buyers at the bottom of the market were buying cheap cars usually reserved as "backpacker bait" for tourists arriving for the summer, rather than buying better vehicles.

On the supply side, Mr Vinsen said the mass depreciation of vehicles had been caused by the "unlimited supply" of used cars in Japan that "cost-cutting, back street dealers" had taken advantage of after the deregulation of dealers 2 1/2 years ago.

Mr Vinsen said the market would be forced to correct itself.

New Zealand importers faced increased competition from countries such as Russia for good deals on vehicles in Japan, as well as the weaker exchange rate and increased fuel costs in shipping them.

Some dealers under financial pressure were putting "low prices on cars that have nothing to do with the market" which also benefited buyers.

Another reason given by some in the industry for the slump was the drop in Asian students: Education New Zealand figures show there are now 25,000 fewer Chinese students, for example, than there were in 2003.

Finally, there was "the Trade Me effect" - 40,000 cars are for sale online - eliminating previous geographic differences in prices, as buyers compare the car they want in Invercargill with prices in Auckland.

Todd Hunter, marketing manager of Turners Auctions, the biggest used car seller with 80,000 sales a year, said his company's sales had not been affected by the over-supply of Japanese vehicles "although there is no doubt there will be a rationalisation of dealerships".

The Weekend Herald spoke to several established used car dealers who were winding up their business or thinking of doing so.

One said: "The only way I could make a buck was to ... sell cars that might not go in a month - and I wasn't going to do that."