The war in Ukraine, clean car discounts and fuel prices have stymied corporate fleet purchases, with sales of petrol and diesel cars dropping to their lowest number in five years
The war in Ukraine, clean car discounts and rising inflation have all stymied the flow of new cars in New Zealand, with July proving the second lowest month for petrol and diesel car registrations since January 2017.
Given 60 percent of new vehicle purchases are from businesses, it’s a sign of a business sector made hesitant by an uncertain world.
Figures released on Wednesday by the Motor Industry Association had 11,101 registrations of new vehicles for the month of July, down 26 percent on the same month the year before.
Association CEO David Crawford said supply constraints were also in the mix, with a world-wide shortage of micro-processors affecting vehicle production and pandemic restrictions slowing production in China.
Palladium and neon, both crucial elements in automobile production, cite Ukraine and Russia as frequent points of origin. Shortages have put strain on the European market for vehicles.
“New vehicle sales in Europe are down by about 20 to 25 percent mostly due to supply of parts for vehicles being affected by the Ukraine conflict,” Crawford said. “Ukraine has many factories contracted by vehicle manufactures to make parts for them and Russia was a big supplier of micro-processors.”
Car parts from China have also seen hold-ups, and with most vehicle manufacturers relying on Chinese production lines, there are traffic jams in the supply chain.
“Covid is slowing down parts made in China,” Crawford said. “China has a zero tolerance policy on Covid, so each time there is a Covid outbreak, parts supply slows down and becomes problematic for vehicle manufacturing elsewhere.”
International pressures have joined local factors like the clean car discount in pumping the brakes for the petrol automotive industry.
The association reported 8049 passenger car and SUV registrations, down 19.4 percent (1935 vehicles) on the same month last year.
Registrations of 3052 new commercial vehicles were down 39.8 percent (2017 vehicles) on July last year. Public appetite and the economic sustainability of having a fleet of combustion engine company vehicles may be changing quickly.
The Warehouse Group, Air New Zealand, Saatchi & Saatchi, TVNZ, Beca, Westpac, Spark and Z Energy partnered up in May of this year to share a fleet of hydrogen-powered Toyota Mirai.
Toyota New Zealand Chief Executive Neeraj Lala said the project shows new ways for companies to approach vehicle fleet ownership.
“This trial… showcases the ability for large companies to join together to share their fleets, which in the future could lead to larger reduction in carbon emissions when you are talking about sharing say 100 cars,” he said.
Similarly, a spokesperson from Genesis Energy said the company had shifted away from having their own fleet of company vehicles and instead use electric vehicles provided by Zilch, a car sharing company, as a part of a strategy to reduce transport emissions.
Genesis replaced company cars and carparks with a 25 percent public transport subsidy, carpool hubs and free shuttles for staff in 2020, which reportedly resulted in a 71 percent decrease in emissions related to vehicle use.
And as businesses move towards greener transport solutions, new car purchases may remain lower than they were in the past.
Crawford said registration numbers were likely to remain low in the coming months and well into 2023 due to the effect of the clean car taxes and other legislation around reducing emissions.
He said the Government’s Clean Car Standard, which takes effect in 2023, will see prices for internal combustion engine vehicles increase as additional taxes hit importers if they cannot supply vehicles to meet CO2 targets.
“These targets increase in severity with each passing year,” he said. “Along with these government policies, the world is increasing moving to low-emission vehicles. The supply of low-emission vehicles is less than for internal combustion engine vehicles but is improving. At least for passenger and SUVs, not so much for utes at present.”
Data from economic consultants Infometrics, which included used car purchases, was released on Tuesday and showed a similar dip in registrations, with total car registrations totalling 16,293 in July, almost a third down on the same time last year.
Infometrics economist Joel Glynn said this was down to the lean economic times of rising inflation and interest rates.
Total car registrations totalled 16,293 in July, almost a third down on the same time last year, according to data released on Tuesday by economic consultants Infometrics.
But while economic pressures have driven down the market for both used and new vehicles, they have not abated the accelerating shift of consumers towards electric and hybrid vehicles.
The biggest drop in registrations over the past year was for large vehicles, which saw a reduction of 42 percent.
Meanwhile, hybrid and electric vehicles represent the largest share of registrations to date, with 28 percent of the last year’s sign-ups and 44 percent of registrations recorded in July.
Glynn said factors like high fuel prices and the clean car discount could push consumers away from the larger side of the market.
“SUVs and passenger vans will have been hit a bit harder by the clean car discount as they tend to be less fuel efficient just because they are larger,” he said.
The clean car discount was also potentially the cause of the lowest month on record in April.
Glynn imagines a large amount of petrol and diesel vehicles would have been registered in late March to get under the wire of increasing fees, which were applied according to the CO2 emissions of vehicles from the first of April this year.
The feebate saw high-emissions vehicles suddenly more expensive to run, and discounts on low-emissions vehicles, which tend to be small cars if not electric or hybrid vehicles.
“People are more likely to consider the cost of fuel at the moment, probably pushing them more towards EVs and hybrids,” Glynn said.
Petrol prices reaching $3.10 a litre for 91 octane in July have likely supported the shift in household demand towards smaller, newer, and therefore more fuel-efficient cars.
In addition, high fuel prices could spur on movement toward hybrid and electric vehicles, with full-battery EVs and plug-in hybrids showing particularly high growth in registration - an average increase of 221 percent and 119 percent per annum respectively.
Despite this, three non-plug-in hybrids were registered for every plug-in registration, suggesting that uptake of electric vehicles is still relatively small albeit growing quickly.
These figures from Infometrics show used car sales continuing to decline after the March feebate spike:
First time registrations, annual running total
Glynn expects the registration numbers to pick up again some time between 2025 and 2027, especially for new cars.
“We see a bit of a weakness over the next couple years as people have constrained budgets and then as things start to turn around more broadly across New Zealand, we see the annual total registrations start to pick up again,” he said.
He put the dip in used vehicles seen after 2018 down to relatively higher levels of discretionary income allowing more consumers to pony up the dollars for that new car smell.
"Potentially because there was a bit more freedom in household budgets, people were opting for new," he said. "That's something that might have changed now.”
David Vinsen is the CEO of the Imported Motor Vehicle Industry Association, which handles the used car side of the industry.
Vinsen said he has heard about widespread slumps in demand from members and suppliers, but doesn’t put the blame on supply issues.
“Volume is down considerably, but we think this is the result of the economic malaise as there is a good supply of used cars,” he said.
He said members of the association had reported recent drops of around 25 to 30 percent.
“The downturn is around people’s sense of uncertainty at the moment,” he said.
Commercial buyers only make up a small proportion of used car sales, so Vinsen said the changes he was noticing were more to do with consumer demand than business hesitancy.
