Adding the vehicle registration fee to the price of fuel would save the government many millions of dollars in paper work, says the Motor Trade Association.
It would also remove the burden on courts handling the roughly 250,000 offence notices - many of which go uncollected - issued each year against unlicensed vehicles.
The MTA says it would help Government lower the annual compliance costs of the warrant of fitness, vehicle registration, and the certificate of fitness and transport services licensing systems.
The Ministry of Transport and NZ Transport Agency are meeting transport groups to find ways to streamline the licensing system.
Transport Minister Gerry Brownlee has said the reform could save millions of dollars in unnecessary costs and time for households, businesses and the government.
MTS spokesman Ian Stronach said including licensing fees at the pump would mean that drivers couldn't avoid the costs of licensing and the need for an expensive label system could be eliminated.
"It would be fairer to all road users with everyone paying in proportion to their use of the roads," he said.
"If they use fuel then they are automatically contributing to the costs of the system. It's a simple solution."
Motorists now need to register their vehicles every three, six or 12 months. Private car owners have to pay $77.68, $147.68, or $287.75.
The fees help to pay for projects and services such as roads and public transport, vehicle safety programmes, and the Accident Compensation Committee's motor vehicle levy, which takes the biggest slice.
A private owner of a petrol-powered car pays an annual ACC levy of $198.46; a diesel car owner pays $311.38 - on top of the road user charge for such cars of around $45 for every 1000km covered.
The MTA says paying the registration fee at the pump would better reflect both the amount of wear to the roads and the safety risks a driver is exposed to.
Potential savings, it says, include cutting the annual $39 million cost of managing the National Vehicle Register, with vehicle and ownership data being validated at the time of a WoF inspection.
Those travelling further each year would would use more fuel and therefore pay more. Their additional ACC levies would reflect the increased time they are on the road and thus exposed to crashes or injury.
Drivers travelling fewer kilometres would pay less.
The MTA said the system could be refined even further if third party insurance was to be made compulsory, as has been suggested.
Drivers would need an insurance provider, who would be able to rate drivers individually for risk, rather than using the current blanket approach.
"This again represents greater efficiency and fairness; good, safe drivers would not have to subsidise the irresponsible," it said.
Further changes to the licensing system would need to take into account the unique nature of New Zealand's automotive environment.
Introducing changes simply on the basis that they were being used overseas, may not necessarily provide New Zealand with the expected improvements.
"We would encourage those considering reforms to proceed carefully, and take our local automotive environment in to account," said Stronach.
"We are a nation of car owners, but ours is not a particularly modern or well maintained fleet. On top of this, motorists are clocking up plenty of kilometres on roads that are not always the best."
According to the internationally recognised KiwiRAP road assessment programme's star ratings system, 61 per cent of rural state highways are rated at 3 stars (out of 5) or less.
Furthermore, 68 per cent of the total distance travelled on rural state motorways is on 3 star roads.
The KiwiRAP site lists the percentage of rural motorways rated as 5 star at zero.
The average age of vehicles on New Zealand roads is over 13 years, old by developed world standards. It is expected to stay at this age level until at least 2020.
The most common year of manufacture of light vehicles on our roads is 1997 - a time when many vehicles had only modest levels of safety features compared with today's new cars.
The WoF system is certain to be changed under the review. The need for a WoF on new cars is expected to be scrapped. New cars would first be checked two years after being sold, followed by inspections at four and six years.
Thereafter they would need a yearly WoF. The current six-monthly WoF on cars over six years old could be extended to 12 months.
In a survey of 500 vehicles carried out last year, the MTA said, 9 per cent had no current WoF and 9 per cent also had expired registration.
It said that of the 75 per cent of vehicles with servicing labels attached to the windscreen, 61 per cent were overdue, the majority late by at least 2000km and/or three months.
Taken together, says the MTA, these elements suggest that any changes to vehicle licensing and inspection systems will have to be based on proven solutions that fit the New Zealand automotive environment and provide long-term benefits.
One Wairarapa driver says he'd be concerned at any move to relax six-monthly testing for older cars.
Roger Clarke of Masterton credits a failed WoF test with saving his life, and says any change needs to be considered carefully.
"I didn't realise there was anything wrong with my car and I don't think I'd be here today if the inspection hadn't picked up my worn brakes and shock absorbers," he said.
He said he was travelling north from Masterton in heavy rain when he approached a bridge near Pahiatua.
"I was travelling about 70km/h, taking care in very low visibility, and there was a truck on the bridge coming towards me. As I got closer, a car suddenly pulled out from behind the truck to overtake it.
"I slammed on the brakes and stopped just before the bridge abutment - metres short of being of being wiped out."
Clarke says the brakes and shock absorbers on his Toyota Windom had been repaired a week or so before the near miss.
"My mechanic said the brakes were one hundred per cent gone - I wouldn't have known anything about them if it hadn't been for the warrant.
"Like most people, the inspection is how I make sure my car is safe."