Hidden costs keep profit margins tight

Press, 1 June 1989, Page 6

Hidden costs keep profit margins tight

Buyers of used Japanese car imports were doubtless surprised about six months ago to learn some were being bought overseas for as little as $6OO. Those who first began to bring in these cars commercially, when import licences were needed, were making healthy margins.

- The margins have dropped and the cheap cars are barely viable. This is reflected in the range of late-model cars now being brought in. Cheaper cars are naturally rougher cars and this can make obtaining the J.A.A.I. export certificate costly. Dealers typically face the following costs in getting a car into New Zealand: The purchase price.

Transport to a factory to undergo a J.A.A.I. test (about 15,000 yen or $180). A J.A.A.I. test (40,000 to 70,000 yen, or $4BO to $830). Transport to the wharf (about 15,000 yen or $180). Shipping to New Zealand (the cheapest about $lO5O, which must be paid in United States currency).

Insurance. New Zealand port charges. Possible steam-cleaning by MAFFish (about $54). Duty, which is calculated at 52.5 per cent of the total purchase price, any parts required to obtain the J.A.A.I. certificate (excluding labour), and inland freight in Japan if this is paid to the seller. The average value for duty of the 15,163 cars imported in the last six months of 1988 was $1420.

GST, calculated at 10 per cent of the total of the value for duty, plus the duty, insurance and freight.

The costs within New Zealand include new registration, which, averages about $2lB, a warrant of fitness, the fitting of seat-belts which meet New Zealand specifications (at least $160), any mechanical repairs which may be necessary, cosmetic repairs and grooming. The Japanese imports have created a new industry in New Zealand. They have created much-needed work for car groomers, transport firms, mechanics, panel beaters and such. They have gone some way towards updating an ageing New Zealand car fleet, forcing many 1970 s cars off the road.

They have also significantly pushed down second-hand car prices, which has cost some owners dearly. But the imports are also placing pressure on the local assembly industry. Mr Colin Giltrap, the managing director of Giltrap Motor Group, which imports new overseas-built cars, sounded the warning last February when, ironically, he announced his company intended to become heavily involved in bringing in used Japanese cars. “I can’t understand why the Government has done this and I don’t believe it is in the consumer’s interest,” he said. Mr Giltrap was surprised that labour unions had not protested strongly about imported vehicles because of the effect on assembly-line jobs. The imports could kill New Zealand car assembly, he claimed. Ford New Zealand’s public affairs manager, Mr Russell Scoular, also voiced concern about the imports.

“The real risk is that at the end of the day it will destroy the assembly industry because it will not have sufficient volume on which it can be efficient.”

He rejected an argument of the importers that the used cars were making up a New Zealand shortage, saying the country was third in the world in the number of cars per capita.

The Australian Federal Government is moving to close a loophole which has

allowed about 18,000 used Japanese cars to enter Australia through Western Australia. The Government, lobbied by the motor-manufacturing industry, moved last week to introduce legislation bringing in Australia-wide car safety and emission control standards which would effectively keep imports out, or at least limit them to the few able to comply. While all states had such standards, a loophole in the Western Australian regulations allowed the cars in. In New Zealand there have been rumblings of discontent but nothing yet to resemble an outcry. However, motor assemblers are watching the situation closely, doubtless concerned about the long-term effects. Some New Zealand assemblers, notably Toyota and Mazda, are willing to supply spares for imports, with reservations about odd models. The spare-parts issue has drawn much comment. The manufacturers, Automobile Association and Consumers’ Institute point to the high cost of air freight, the availability of parts, adequately identifying the necessary components, the cost, possible time delays in obtaining them and higher insurance premiums or excesses. Importers point to the large quantity of second-hand parts brought into New Zealand and reject pricing criticism. They maintain the insurance industry is now less apprehensive, although this may be through economic necessity. The imports now make up a significant part of car-insurance business. The buyers of oddballs or orphans are likely to face parts supply problems. They should buy such cars bearing this in mind and find out beforehand what insurance companies have to say. Some will limit payment to the last known list price for the part’s closest New Zealaand equivalent. This is likely to leave a considerable shortfall and most insurers will meet seafreight costs only. Buyers should be aware of significant engine and gearbox differences in some models, even though body shells may be almost identical to New Zealand models. Most Japanese cars come with emission control systems. Running them on unleaded petrol is essential. The trade-in price for Japanese imports have also drawn criticism, some dealers offering thousands less than the purchase price only months after selling the car.

Mr Gary Cliff, spokesman for the southern branch of the Motor Vehicle Dealers’ Importers Association, said members of the body had been working to keep trade-in prices solid. It is certainly in dealers’ interests to do so, but yards are well-stocked and nearly 2000 cars are bound for Timaru, let alone Mount Maunganui and Auckland, the two North Island ports handling most of the trade. Good trade-in prices are not likely in such circumstances. New Zealand-new cars have been holding their value better than the imports. The imports have caused volatility in the used-car market. The president of the Motor Vehicle Manufacturers’ Association, Mr Denford McDonald, describes it as an aberration.

Whether this aberration becomes the norm relies on many factors. The strength of the New Zealand dollar, the continued competitive pricing of cars in Japan, the willingness of the Government to allow them into the country and the willingness of the public to buy them will all play a part.