The Colonial Motor Company Limited Analysis

Overview

CMO originated in 1859 from a coach-building operation at 89 Courtenay Place Wellington. In 1881 it merged into Rouse & Hurrell, a partnership that formed into a limited liability company in 1902. The Ford Motor Company agency for New Zealand was acquired in 1908, and in 1911 the company name was changed to The Colonial Motor Company Ltd. In 1919 a new company was incorporated introducing additional capital from Hopeful Gibbons to fund expansion. In 1936 the Ford Motor Company took over the assembly and distribution side of the business, enabling CMO to focus on the retail dealership operations.

Today CMO owns and operates twelve Ford Dealerships with each holding a franchise in its own right from the Ford Motor Company of New Zealand Ltd. Seven of these Dealerships also have Mazda franchises. All Dealerships sell new and used vehicles as well as providing parts and service. Recent diversification has introduced other brands and motorcycles to the mix of products. The Company is involved in the distribution and retailing of Kenworth and DAF heavy duty trucks, and in the retailing of New Holland, Kubota and Case IH tractors and equipment in Southland.

Descendants of the subscribers of the original 1902 company remain shareholders, and the current major shareholders in CMO are descendants of Hopeful Gibbons. In 1995 Guinness Peat Group secured a 34% shareholding which it sold two years later to MBM Resources of Malaysia. MBM gradually sold down its holding and in 2003 sold its remaining shareholding on market, introducing over 300 new shareholders.

In addition to operating the car, truck and tractor Dealerships, CMO's philosophy is to own the properties from which its subsidiaries operate. Land and buildings continue to make up a significant proportion of CMO's assets.

Performance

The following information was extracted from The Colonial Motor Company Limited's Full Year Results, released on 20 August 2024:

The Chair of the Colonial Motor Company, Ash Waugh, today announced a Trading Profit after Tax for the 30 June 2024 financial year of $17.88m.

He noted that, over the past two years, the Company had reported deteriorating market conditions. This resulted in an increasingly challenging trading environment and the deterioration is evident in this year’s result. It was still a year of two halves. The first half produced a respectable result in a weakening market, albeit with high inventory carrying costs. The second half bore the full brunt of recession with softer light vehicle demand, continuing high interest rates and an oversupplied market across the industry. New and used vehicle margins have been squeezed, reducing dealer profitability. The dealer response has been to review cost structures while remaining focused on delivering positive bottom-line results. For context, he pointed out the June calendar year-to-date new vehicle market was 26.2% down on the prior year.

Mr Waugh said the Company’s heavy truck business continued to perform well as customers replaced their existing vehicles with long awaited new units. Meeting that demand came with adverse imposts on efficiency, productivity and inventory carrying costs. We have seen no such replacement policy in our tractor operations, which are heavily impacted by the negative sentiment in the agricultural sector.

We remain confident that the ongoing investment in the JAC Motors brand will bear fruit in future years. The team continues to work through vehicle compliance, on-road testing and the set-up of a sales and service network, all of which incur the normal challenges associated with establishing a new brand.