Full throttle for NZ new car market in 2012

By Wright Communications

The growth statistics were presented by Toyota New Zealand CEO Alistair Davis in a global and domestic overview as the market-leading company released its new Corolla Hatch.

The figures[1] show New Zealand new car sales up 21% in the 2012 financial year, with only Japan growing faster at 22%. On the other hand China (9%), India (7%) and Australia (6%) all trail some distance behind New Zealand's growth rate, while Western Europe's economic turbulence has seen its new car market shrink 5%.

"Japan has benefitted from a government subsidy for cars with good fuel economy. The reasons for New Zealand's growth rate are very different," said Mr Davis.

"Our economy is growing at 2-3% but the car market grew this year by more than 20%. I know that is not strictly a fair comparison because the car business tends to outperform economic trends. But even so a 20% growth rate is well above what anybody really expected this year."

Mr Davis acknowledges that the new car business fell sharply in response to the global financial crisis in 2009 but it has made an equally dramatic recovery. He puts this down to a number of factors including the customer confidence, exchange rates and lease commitments but he highlights the increased rate of scrapping older cars as a significant behind-the-scenes contributor.

"In New Zealand the average age of a car when it is scrapped is 18 years. The car fleet in this country is aging badly and with the bubble of 1996 cars now 16 years old, that creates pressures in the marketplace," said Mr Davis.

More cars in the New Zealand fleet are manufactured in 1996 than any other year because of this country's Frontal Impact Standard which effectively restricted used car imports to those manufactured during or after 1996.

"Effectively those 1996 cars are reaching the point where it becomes more economical to scrap them than to keep maintaining them in order to get a warrant of fitness."

Mr Davis explained that this increase in scrapping older cars prompts a chain reaction.

"Demand at the bottom end of the market rises and pushes up the value of used cars. That works its way up the value chain from 18 year old cars, through 7-10 year old cars (stimulating used imports) and ultimately up to 3-6 year old cars. That lowers the trade in gap and the result is that new car sales rise as well."

"Given that there are still two years to go before the bubble of 1996 cars reach 18 years old, we can reasonably expect demand for new cars to continue to grow over the next 12 months and beyond."


[1] From a combination of sources including Scotiabank, Toyota New Zealand and Japan Automobile Manufacturers Association

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