Turners Auctions managing director Graham Roberts
-by Jenny Ruth
Turners Auctions annual net profit fell 37% to $3.2 million in calendar 2006 with the company saying that the number of imported used vehicles had been at their lowest level in more than five years. New registrations of used imports fell 13% in the company's first half and were down 26% in its second half, reflecting increased global competition for such vehicles, particularly from Russia.
Sharechat: How are your online operations performing?
Turners Auctions managing director Graham Roberts: We've actually been online for about six years now - that's been a dealer only service. Auto Turn was for the trade only. The big launch in May last year was Turners Live. We're extremely happy with how that's gone. Ten percent of the cars we sold last year were sold through Turners Live. In addition, 20% of the cars we sold had online bids. So from a standing start in May last year, we're extremely happy about that.
SC: How is competition from other sites such as TradeMe affecting the company?
GR: TradeMe has taken the place in my view of the traditional media. What I find really interesting is that in the motoring section of national dailies now there's very limited numbers of car advertisements. Why? Because TradeMe can present your car far better with photos and all those sorts of things online. In terms of being able to present your car in the best light, I think TradeMe has done a very good job. When I speak to members of the traditional media, they are reluctant to acknowledge the impact of TradeMe. Ninety percent of cars on TradeMe are dealers. What that means is that dealers have more choice of how to buy and sell. Dealers are about 45% of our customers. What not just TradeMe but online generally does to us is it's another channel for them to buy and sell through. At Turners we're maintaining our overall market share. We've been able to maintain our market share over the last 18 months. In future we will have a lot of developments online. I will be presenting some of those at our annual general meeting in May. A lot of that is work in progress. You will see a lot of enhancements to the types of services we offer online. Broadband is a frustration for me in terms of enhancing Turners Live to the public. This is where I've been lobbying the telephone companies. For Turners Live to work at its highest level, it needs true broadband. I'm really disappointed the ISPs haven't stepped up broadband. People can attend our auctions online, but the quality's not great.
SC: You said you sold 10% of all vehicles last year online - isn't that rather low?
GR: I think that was significant, given that we didn't really sell much online before. It's been very, very popular with traders. One thing that's made it slow to be adopted is that it's not easy to use in a dial-up mode. You really need broadband to make it work effectively. I benchmark this against where we discovered the product in the US where it's been going quite a long time. They will sell perhaps 20% of cars online. That we achieved 10% in seven months I think is significant.
SC: What do you expect online sales could grow to?
GR: It's moving above 10% this year at about 12% or 13%. It is going to be dependent on the availability of broadband to get the best experience. Our target is to make it to 20% and we're hoping to get there later this year. The reality is with cars people still want to touch and feel before they buy. Generally, people will come in and do a test drive, do a touch/feel to make sure it fits them (before the auction). We're doing research right now with customers to ask them what time they would like to attend our auctions. At the moment, auctions are generally in the middle of the day or six in the evening. We're looking at whether people would prefer to have the auction at 7.30 in the evening so maybe they could do a test drive on the way to or from work and be at home and able to bid online. Our dealer customers will buy online sight unseen. The public have told us that regardless of how well it's presented online, that will help them narrow down their search, but it's more an emotional decision rather than a business transaction. It is their second biggest purchase after a house.
SC: What's the outlook for used Japanese vehicle imports?
GR: It was around 30% down last year from the previous year so that was a massive drop. It was very difficult to buy in, mainly due to international competition. New Zealand invented this whole industry of taking these cars out of Japan. New Zealand bought 5,000 cars in November and Russia bought 40,000 so there's tremendous competition. We're getting signals - Russia is the biggest single buyer in Japan right now but the fact is they're a left-hand drive (country) and these cares are going into Russia illegally. The Russians have the money and the desire to have transport. Perhaps a light on the horizon is both Toyota and Nissan are planning to set up factories in Russia. One of the conditions to the Russian government is that they must stop these imports of second hand cars from Japan. This year, we've had no difficulty in the last three months buying cars. We're trying to understand what's changed in Russia. What we've changed is we've focused on quite different cars. We're encouraging our importers to buy higher quality cars. With the Turners Certified product, we can't get enough cars to satisfy demand. With Turners Certified, you get a six months guarantee. What will happen later in the year and what the Russians will do is yet to be seen, but right now we're finding it relatively easy to buy cars up there.
SC: Why is there low demand for used imported vehicles?
GR: There was really an over-supply of vehicles. So many vehicles had been brought into the country, particularly at the time the New Zealand dollar dropped away and then came back last year. There were thousands of vehicles available and the vendors who had imported the cars weren't particularly motivated to sell. The buyers were holding out for a really good deal. What we've seen which is a positive trend in the last two or three months is that more cars are selling through LTSA than are being imported. That means that the whole car park is reducing. With the strong New Zealand dollar, so many people were going to Japan to buy. Twenty percent of dealers/traders have withdrawn from the market in the last 12 months. Going to Japan and bringing in a car to New Zealand and selling it is quite different from selling a car from one side of a city to the other in New Zealand. It has cashflow implications. A lot of traders learnt some tough lessons in Japan last year which is why we've seen so many of them withdraw. It was just under a 20% reduction in traders last year. It could be another 10% this year.
SC: Is that positive for Turners?
GR: Absolutely. It's going to be healthier in the medium term for the industry. The stronger will survive and it's going to be people like Turners and the franchised traders. We're going to be stronger. Customers are going to continue to expect more - in New Zealand we've arguably got the cheapest cars in the world. The consumers here have been really quite spoiled.
SC: Did high petrol prices have an impact?
GR: We send our customers every quarter the top 10 selling vehicles for the country. If you're driving a Holden or a Falcon, a big car, six cylinder, what we saw when the petrol price spiked last year, of those three years old, a Commodore would be selling for about $26,000 the previous year. It went down as low as $18,000 during the spike in fuel prices. That doesn't mean people decided to swap out of their Commodore into a Corolla - it's a four cylinder car. What people did is postponed their purchase. Us blokes like to have a six cylinder car. Guys make a choice of car on how they look and the capacity of the engine. Women make a choice of car based on things like safety features and colour. Buyers of large cars weren't going to purchase a smaller car. These big cars dropped out of the top selling cars (list). Towards the end of last year, even though the fuel prices stayed up there, they came back to number six or seven. The cost of big cars went down so much that they come back into the market and became popular again. I think we've got a bit to learn about fuel efficiency. Turners plans later this year to provide details of fuel efficiency so they will know what to expect in terms of the economy of the car. I don't think New Zealanders have learnt their lesson in terms of the fuel price. We still know the cars we like to drive.
SC: Shouldn't the company have been benefiting from the high New Zealand dollar and, conversely, won't it suffer if the currency falls?
GR: It's a double-edged sword. It means new cares are also very cheap. That's had an impact on us. When did you last see prices of new cars increase? It was a very long time ago. You can now buy a new car for as little as $17,000. That has an impact in the short-term on second-hand cars. You're right that importing from Japan with a strong dollar means we can land them a lot cheaper in New Zealand dollars. I dare not project what's going to happen to the New Zealand dollar. Our view is it's not going to change in the next 12 months. Based on that, New Zealanders can continue to get very good value for their money.
SC: You said there was a temporary reduction in NZ new vehicles from leasing companies - are you seeing signs of that reversing?
GR: With all those car residual values dropping in price, leased cars, which represent a large proportion of the New Zealand fleet - a lot of companies decided to postpone the replacement of their company vehicles. That did impact us last year but that's money in the bank in that we will get those cars this year. It's a pretty effective management tool, telling your employees you're not going to get a new car this year. When it impacts on personal outcomes, it comes through loud and clear that they do have to cut back this year.
SC: How has the new valuation service performed so far in 2007?
GR: We launched that towards the end of last year and we got 60,000 people signed in to do a price check and 80% of those hadn't previously used Turners before. We tried a whole new advertising approach through newspapers and TradeMe and all different online sites to drive people to us online. The research we have is that 80% of people who go out to buy a car do their research online first. Those are the people we're targeting. Most people who go out to buy a car have no idea what their car's worth or what a new car will cost. These are real prices people have paid for cars so they're empowered as to what car they would like to buy before they go. We were able to track those 60,000 people through to actual attendance at auctions. Some just came in and did a valuation check. Half of them requested the Turners catalogue for their area. We then tracked them through and we sold 570 vehicles in the final seven weeks of last year.
SC: Isn't that rather a small number?
GR: What's huge is that 80% of those people hadn't used Turners before. The important thing we take out of it is we're engaging with a whole new group of customers. These are new customers we haven't had before. One of the things we've found is a lot of people who come to auctions will visit us two or three times before they buy, A/ to do their research and B/ to understand how the whole auction process works.
SC: Why did your finance operations hardly grow at all in 2006? What's the outlook for your finance operations?
GR: Last year with all those finance company collapses, I think, for the right reasons, we over-reacted in terms of our credit criteria. We've relaxed that to ensure we don't turn away good business prospects. There's been a big impact on the business (from the collapses). That's part of the reason why those traders went out of business. They were so dependent on the ability to finance lower value cars. We've just employed a new manager for Turners Finance. Her name is Mandy Brooker. She's joined us from GE Money so she has a lot of experience. I'm pretty confident that, in terms of driving our sales people nationally, her experience will deliver good results. We pretty much have a dedicated finance person in every branch in the country and in the larger branches we have two or three. I'm very confident we will do a lot better this year than we did last year.
SC: Why did you decide to exit North America at a loss and why was the Ehli Auctions sale completion delayed?
GR: It took quite a while to negotiate the departure. Those businesses when we sold them, both the Canadian business and the US business, were profitable. We needed to decide, as a company, did it make sense that we had a couple of Hamiltons on the other side of the world. That's broadly what the size of those businesses was. Given that it had taken us about three years to get those businesses up and running the way we wanted them to, we decided the drain on management time was too huge. We decided we would be better focusing on New Zealand where we're very well known. Even though we're market leader in New Zealand, we only have 7% or 8% market share. I'm confident our objectives of improving that by three or 4 percent in the medium term is achieveable. The other thing with North America was it was going to require significant investment to expand the rollout around the US. In terms of return on investment, it was going to take quite a long time to make that happen. To expand further would have been a massive drain on all our key managers within the Turners organisation.
SC: Was going offshore a mistake? Will the company be sticking to the New Zealand market from now on?
GR: I think we learnt things in North America like Turners Live. North America is where the action happens and we've stolen a lot of ideas. Our decision to withdraw there was quite timely. We listened to our shareholders - it hadn't been popular with them. We're focusing on New Zealand, in the short-term anyway. There's been a massive change in the auto industry in the last couple of years. That happened at a time when we were off doing things in North America. Who would've though there would be 20% of dealers disappear in one year? The greater opportunity for us is to focus on where we are now. We're a trusted brand out there that I don't think has been exploited to anywhere near its potential. It's all about growth.
SC: Tony Coombe and Stuart Clark sold shares last year. Is that a bad sign for investors?
GR: They're personal decisions. Stuart's no longer working for us. He was a great servant of the company for 27 years and he decided to move on. He left on very good terms and at that time he decided to sell his shares. That was his personal choice.
SC: You had two new senior managers join the company last year (Todd Hunter and Tofigh Alizadeh) and Stuart Clark left not that long after your predecessor. What conclusions should investors draw from these key personnel changes?
GR: I restructured the business in the middle of last year. I brought in Todd Hunter, who was previously with Microsoft and New Zealand Post, to bring in his considerable marketing experience. IT was previously under finance. That is a critical part of our business. That's when we brought in Tofigh. He also reports to me directly. I also made an internal appointment, Shane Prince, to look after the damaged division. That's doing extremely well. One of the good things we did last year was we signed a deal with IAG and Vero for further two or three year periods. He's also responsible for commercial and industrial, all the non-car stuff. We've also brought in a new financial controller, Aaron Saunders. Tony Coombe, who was previously CFO, has taken over direct responsibility for Turners Finance to give it the attention it deserves and of Turners Fleet, our importing business. He had been in the company for 12 years. This is taking his knowledge of the business and giving him the opportunity to directly manage some of our key business units.
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