Competition delivers value from early chaos

By Alastair Sloane

Carmakers who didn't adapt quickly enough to the tariff-free environment after the 1998 budget have struggled in what has been a turbulent 12 months for the industry.

But the Government's sloppy administration of duty refund payments a year ago, where importers shipped landed vehicles offshore and re-imported them in a bid to claim refunds, created early confusion.

"The Government's handling of this was shambolic," said Perry Kerr, the chief executive officer of the Motor Industry Association.

"This put people off buying new vehicles because they didn't know what was going on any more than the industry did."

Mr Kerr said the new-car market in 1998 was the "worst in living memory."

Sales were slow early in the year because of speculation over the removal of tariffs and the expected rush to buy once tariffs were removed didn't happen, he said.

"Things have since settled down and we now have a competitive, open market which is starting to grow again.

"Perhaps some of the assemblers took longer than others because they were faced with a completely new way of doing business. But the companies have now adjusted to the duty-free environment."

Four carmakers - Toyota, Honda, Mitsubishi and Nissan - closed their assembly plants last year and began importing fully-built vehicles.

Sales of new cars in 1998 were down nearly 8 per cent on 1997, but the first four months of 1999 show an increase of more than 10 per cent.

One of the carmakers which admits it didn't adapt quickly enough to structural changes was Honda. Its sales dropped more than 30 per cent in 1998.

"A symptom of this were the problems we suffered in the changeover from ckd [local assembly] to cbu [fully built-up imports]," said the company's managing director, Sho Minekawa.

Heavy discounting by rival carmakers also hit Honda's sales during the changeover, but the carmaker says it is putting in place plans to get back to the numbers it did in 1997, when it finished third behind Toyota and Ford.

"The reality is that it is very difficult for a car company to make money in New Zealand," said Mr Minekawa recently.

"As a businessman at heart, I find this situation intolerable.

"Market share can be a measure of success but if those volumes have been achieved simply by accepting losses to the bottom line, I question how long this can be sustained."

Mr Kerr said New Zealand now was the most competitive new-car market in the world, unlike, say, Britain where the industry was still protected and prices were sometimes tens of thousands of dollars more expensive.

"New cars are more affordable than they have ever been and they are certainly more competitive against used vehicles," he said.

"In the low end of the market especially you would be almost silly to buy a used vehicle now."

The popular opinion is that total sales this year will improve by about 5 per cent over 1998, or from 65,998 to about 68,000.