Mark-up on parts 'too low’

Press, 4 August 1977, Page 7

Mark-up on parts 'too low’

PA ' Wellington. The mark-up on motor vehicle spare parts was too low, a Todd Motors corporation executive has claimed. Mr N. K. Smith, the corporation’s finance director, told the Commission of Inquiry into the distribution «_f motor vehicle parts that the present average mark-up of 50.08 per cent was insufficient. The cost of stock in its parts division required an average mark-up of 50.8 per cent to break even. A mark-up of 51.01 per cent on tractor parts left 0.68 per cent after costs and tax had been covered, Mr Smith said. "You will see that these figures indicate quite clearly insufficient markups,” he said. The mark-ups quoted by Mr Smith relate to those charged by the corporation as a spare part is passed on to a local dealer. A spare part had to have a retail price of more than 8150 before a mark-up reduction was considered. The mark-up suffered if the corporation dropped the price of a part to meet competition.

Mr Smith also gave a confidential submission to the commission giving details of the corporation’s finances. Mr D. G. Prankerd. the corporation’s planning and systems manager, said that it would be happy to have its margins reviewed if they were revised upwards. Mr Smith said that the Government collected about S2M from duty and sales tax on Todd parts in the 1975/76 year. The corporation estimated that 60 per cent of its parts were

available from non-fran-chise sources. Todd dealers were required to buy their parts from the corporation to enable it to maintain the reputation, reliability, and safety of its vehicles.

The franchised system of distribution was the most effective means of ensuring customers’ requirements were met.

Franchise dealers supplied parts carrying a time and usage warranty, and had a ,dir-ct interest in after-sales service and quick access to a larger national stockholding of parts than other suppliers.

Mr Smith said that the detailed cost of components in a CKD car pack was not known. The price of packs could vary according to the volume bought by the New Zealand distributor, and the supplier’s market objectives in New Zealand.

“The replacement parts industry over the last 15 years has become a very complex industry. It is one of high risk, with high capital investment and with a very high obsolescence potential,” Mr Smith said.

The corporation stocked 35,000 different pans in 1963, and it now stocked 106,139. Mt Smith said that the corporation would like the abolition of sales tax to be considered as an c couragement to motorists to maintain vehicles in good condition. Different rates of duty on vehicles, depending on their country of origin, should also be abolished, he said.

The corporation’s legal counsel, Mr M. J. O’Brien, Q.C., opened its submission 1 by saying that the complaints already presented to the commis-

sion had been of a superficial nature. Public concern had been stirred up during commission hearings by allegations unsupported by credible evidence. No evidence had been presented to show that Todds or any other distributor were not working within the law and price control regulations.

The Automobile Association had apologised publicly in daily newspapers for errors in its submission — no doubt to avoid expensive defamation actions, Mr O’Brien said.