Signals suggest June was a good month for vehicle sales. Photo / 123RF
All signals are pointing towards June being a strong month for vehicle sales as consumers reprioritise their spending with the breaks on international travel.
With consumer confidence back up slightly and would-be shoppers forced to spend locally, the Motor Industry Association is hopeful June vehicle sales would have bounced back closer to pre-Covid levels.
New vehicle sales were "savaged" in March, with registrations down 37 per cent on the same month a year earlier, and down 32 per cent in May. April was a write-off with new registrations down 90 per cent due to inactivity caused by lockdown.
Motor Industry Association chief executive David Crawford said his gut feel was the sector had a good month through June - but he was unsure if this was sustainable.
Crawford said the forced closure of the border and cancelled holidays, and therefore more money in Kiwis' pockets, was contributing to stronger than expected sales. Some economists hold the same view.
"The observation around travel and spending came up with a discussion I had with Cameron Bagrie recently; he has long held a view that vehicle sales and parts are being driven off asset values and low interest, which we have known about for some time," Crawford said.
"This month, the phone hasn't been ringing hot [from association members] so that's a good sign."
Crawford said it was likely increased sales in the industry in June were also still being driven by "pent-up demand".
June is typically one of the busiest months for Kiwis to travel internationally to break up the winter and soak up the sun in the Pacific islands or Hawaii.
And now, with overseas holidays not possible, more people have money in their pockets.
"There is a possibility that with overseas travel off the table for quite some time, combined with low interest rates, people are buying vehicles instead," Crawford said.
"It's quite easy to spend $20,000 on a family trip to Europe for a couple of weeks; if you are travelling in New Zealand and go to Queenstown, for example, you spend half that so people have got some money left in the bank, and interest rates look to remain low and possibly go lower, so I think people are deciding to treat themselves."
Consumer confidence bounced in June with the number of optimists outweighing pessimists as life largely returns to normal.
The latest ANZ-Roy Morgan Consumer Confidence index rose 8 points to 104.5. The only area still in negative territory was the outlook for the economy as a whole in 12 months and even that improved.
Official sales data for new vehicles in June comes out next week. If the sales figures are up, Crawford said he expected to see commercial business vehicle sales down (due to lack of business confidence) and private passenger vehicles sales up.
"We always thought May and June might be stronger than July, August, September. If July also holds up strong then we would be delighted but that certainly would exceed our expectations.
"We expect as we get closer to the election, as some of these employment subsidies end and the rules for continuing subsidies get tighter, people will start to tighten their belts and save money because there is less to go around."
The Motor Industry Association expects the remainder of the year to get tougher, particularly if the virus remains rampant overseas and New Zealand's border remains closed.
Coby Duggan, general manager of Volvo New Zealand, said vehicle sales over the month of June had been "the most normal for trading for the quarter".
"Sales, in general terms, and anecdotal feedback from around the industry has been similar in that we are tracking ahead of conservative estimates that we had in place post-lockdown, but it does feel as though it is too early to tell what the future holds for the rest of the year," Duggan said.
Passenger vehicle and SUV sales at Volvo were down 90 per cent in April and 30 per cent in May compared to May last year. June results were encouraging, Duggan said.
Duggan agreed that less money spent on travel - and more Kiwis returning home needing new vehicles - was likely influencing the lift in industry-wide inquiries and sales.
The used-car market had performed better compared to sales of brand new vehicles, he said.
"Even though as an industry the feedback has been pretty consistent and this month has tracked better than we expected it is far too early for any complacency."
Todd Hunter, chief executive of Turners Group, which sells second-hand vehicles, said the NZX-listed group had experienced a strong bounce-back in trading in June - and sales were tracking about 5 per cent ahead of the same month a year earlier.
In the year to March 31, the company posted a net profit after tax of $21 million, down 8 per cent on last year's result. Sales in Q1 of the current financial year were stronger than it had expected.
Hunter said the used-car market was less discretionary in nature and often more resilient to disruption in the economy. He said the company had noticed an increase in demand in vehicles in the lower end of the market under $15,000.
Turners remained "cautiously optimistic" about the trading conditions in the month ahead, he said.
"Through the global financial crisis (GFC), the used-car market dropped about 12 per cent ... and if we end up in a recession you might expect something similar."
The market took between two and three years to recover after the GFC in 2007.
"One million used cars change hands every year, and we're the biggest operator and have a relatively modest share, so there is still plenty of opportunity for us."
Jamie Russell, marketing manager of nationwide car dealership group Ebbett Group, said June had been a strong month for car purchase inquiries.
Ebbett Group, which operates 15 dealerships, had also experienced a bounce-back in inquiry levels in June, and had been stronger than what it had anticipated, Russell told the Herald.
"People seem to have [the thought process] of a) if we're not going to take a foreign holiday, then we probably have some budget this year to upgrade our car and b) they have had the time to consider [a new purchase]."
Russell said while June signals were encouraging, Ebbett was not confident that market conditions had returned to normal levels.
The prices of vehicles could increase in the months ahead. Determined by the volumes of vehicle sales.
Freight charges and exchange rates influence prices. Disruption to supply and less incoming vehicles is also an influencing factor.
"If the exchange rate goes the wrong way then over time prices will have to move - it's a really hard call at the moment as to which way it will go," Crawford said.
"At the moment, historically low interest rates are - in the consumer's mind - offsetting any price increase."
If the value of New Zealand exports remained high then the dollar should remain strong, but this depends on what happens in America and Europe.
Earlier in the year there was nervousness within the industry about oversupply, Duggan said, now, sentiment had changed and there was a greater risk of undersupply.
This would in turn mean price increases were likely, he said.
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