The Insider: New Zealand motor industry insight
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It’s been a year since New Zealand’s first big lockdown, in response to the global Covid-19 pandemic. It seems like a good time to reflect on the industry over the past 12 months.
I think it’s fair to say most of us in the automotive industry were uncertain about what would happen to our businesses at that time. It was deeply unsettling – nobody really knew where it was going to go, what impact it would have and for how long. Like other importers, our initial reaction was conservative with a “cut production” approach.
While that may seem like a knee-jerk reaction,we thought that the NZ economy might struggle and go into a deep recession.
As it transpired, that didn’t happen. The automotive market bounced back rapidly. We saw a lot of inquiry soon after lockdown – quite a bit during, actually – and the July following was a record sales month for Jaguar Land Rover with other premium and luxury auto manufacturers achieving similar results.
So, while there’s no doubt that overall numbers are down compared with the previous year, that’s only because of the lockdown periods where we’ve had no sales. Month for month we’ve matched or exceeded 2019 and if we’d been able to get stock,we would have been able to sell 25 per cent more vehicles.
Customers buying our vehicles tend to be businesspeople themselves; they’re astute and they realise that the only way the economy will survive is for us all to spend locally. As a result, we’ve seen our average sale price increase with people spending more per car than we’ve ever seen before. Customers in this part of the market are buying more top-end, at higher prices, with more options.
Many of those in travel and hospitality have been hit very hard over the last 12 months and we certainly feel for them. However, many other areas of retail are doing very well, including the automotive markets, which are experiencing a lack of supply but high demand meaning that margins are strong.
The idea that people are buying new cars because they can’t travel might seem apocryphal, but it’s true. We’ve done a lot of research on what our competitive set is – as part of this process we ask customers: “What else are you considering when you’re looking at our products?” What comes up is not always other vehicle brands but other uses of discretionary income such as home renovations, business investments and overseas travel (to name a few). So, when overseas travel dropped out of the market, automotive manufacturers in this part of the market lost a big competitor.
We also found ourselves in a good position with the timing of the new Defender, which is a hero model for us that has very much invigorated the wider Land Rover brand. While it has been a difficult economic time for many, the great thing about Defender is that it meets many of the needs Kiwis have in an SUV—it’s extremely functional and our customers enjoy the “go anywhere, do anything” nature of the vehicle.
We wouldn’t have banked on that when Covid-19 hit.We thought people would consolidate and wait. But the opposite happened; people went out and spent. The big issue for the automotive market going forward will be managing the ongoing fluctuation in supply, rather than supply itself. Managing large variability in supply chains has a flow-on effect for a range of business functions and it is unlikely that any manufacturer will be immune to this over the coming months. Stopping production was easy, but getting it going again is more difficult. For the global factories it was a survival strategy and because we’re quite sheltered here in NZ, we don’t always appreciate the severity of what’s still happening throughout the world.
The UK, US and China bouncing back will further increase demand, and while there maybe concern that these countries will have priority of automotive stock, we can take comfort that as this starts to happen factory capacity will also improve to pre-Covid levels allowing for more predictable stock volumes for our local market.
At Jaguar Land Rover we’re preselling vehicles in many cases, but we’re fortunate to have patient and understanding customers and, in most cases, they want more personalised vehicles and are willing to wait. So, the question arises: are we simply bringing customers forward in the buying cycle, meaning that one day it’ll all just slow
dramatically? I don’t have the answer to that, but with the current environment and the addition of affluent Kiwis returning to NZ in response to the pandemic, we may see high demand continue.