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Big importer allowed to test its own cars

One of New Zealand’s largest used car importers is flouting international rules designed to stop importers from testing their own vehicles, and the regulator has done nothing to stop it, Thomas Coughlan reports.

The New Zealand Transport Agency found two years ago that a Japanese group Optimus owned a range of New Zealand companies, including vehicle tester VINZ, car wholesaler Nichibo and and car lender Auto Finance Direct, for over a year without declaring the conflicts of interest.

NZTA ruled the conflict was not material, but protested the lack of disclosure. However, Optimus' local competitors and an industry commentator have criticised the NZTA's lack of action, saying it risks undermining public confidence in used vehicle safety and has created a vertically integrated competitor able to undercut local businesses.

Three companies, Japanese testing firm JEVIC, wholesaling importer Nichibo and VINZ together import and certify thousands of cars from Japan each month. Nichibo employs 450 people here, while VINZ employs 170 people to inspect 175,000 vehicles a year. The three companies are separate and control different parts of the import chain, but since March 2015 they have been owned by the same Japanese company.

This flouts an international standard, to which New Zealand adheres, rules, and NZTA’s license to both JEVIC and VINZ which forces them to immediately disclose conflicts of interest.

But neither JEVIC nor VINZ informed NZTA of their mutual owner for a whole year after they were acquired, leading the Transport Agency to issue a formal warning when it eventually found out one year later.

In that time the companies have imported and certified thousands of vehicles.

NZTA Chief Executive Fergus Gammie told Newsroom the controversy raised “serious issues”. Last year, NZTA issued a formal warning to the companies.

The company’s structure means VINZ tests and certifies cars that JEVIC imports.

This goes against an international standard that says a company that tests and certifies a product cannot have a financial interest in that product. The rule is designed to make sure the vehicle tester is independent and faces no pressure to certify a vehicle as roadworthy when it may not be.

Misleading NZTA, the Companies Office, and the public

The two companies control different parts of the vehicle importation chain.

JEVIC holds a licence from NZTA to import vehicles from Japan, while VINZ holds a licence for vehicle testing.

Ordinarily, one company would not be able to hold those two licences at the same time. It appears JEVIC and VINZ knew this. After being acquired by Optimus in March 2015, the companies waited a year to notify NTZA that they were owned by the Optimus group.

With JEVIC and VINZ, Optimus has interests in all stages of the car importation process.

It owns Nichibo, a company that purchases cars in Japan for the purpose of export, JEVIC, which carries out checks before the cars are exported, and VINZ which certifies the cars when they are in New Zealand.

It even owns Auto Advance Finance LTD, which offers consumer finance for vehicle owners.

This August, NZTA issued a formal warning to the two companies reprimanding them for misleading the agency about their ownership structure.

Newsroom has obtained this warning under the Official Information Act.

Gammie told Newsroom the issue was of “serious concern”.

“The existing policies regarding conflicts of interest have been identified by the NZ Transport Agency Board as an area of serious concern,” Gammie said.

“The [NZTA] Board has unanimously agreed that the policies need to change and has tasked the Transport Agency management team with implementing a new approach, noting that conflicts of interest are unacceptable in modern business practice,” he said.

The major concern now is how many cars Optimus both imports and certifies. It likely imports many cars that are certified by a company it does not own, likewise VINZ also certifies cars imported by a company that is not Optimus-owned. This practice is acceptable and legal.

What is in direct contravention of industry regulations, and the licences issued to both JEVIC and VINZ by NZTA is the importation and certification of cars by two parts of the same company.

The false declaration

Correspondence between NZTA and JEVIC/VINZ released under the OIA show that in March 2015 the Optimus group purchased the holding company of both JEVIC and VINZ.

In August of that year, VINZ notified the Companies Office its ultimate holding company was Japan Export Vehicle Inspection Centre Company LTD.

This was a false declaration. By law, VINZ should have declared that its ultimate owner as the Optimus group, not Japan Export Vehicle Inspection Centre Company LTD.

Industry participants, speaking to Newsroom anonymously for fears of reprisal from the Japanese export vehicle industry say the companies likely misled the Companies Office as its information was publicly available and the companies did not want it to be known they were flouting testing regulations.

Finally in May 2016, JEVIC and VINZ advised NZTA that it was in the “throes of changing the ownership of its parent companies” and that it may create conflict of interest problems.

Newsroom has obtained this correspondence under the OIA.

NZTA later reprimanded JEVIC and VINZ for this, as it was not in the “throes” of an ownership change. The ownership change had been completed the previous year and conflict of interest problems should have been disclosed before then.

Even after the companies corrected the record at NZTA, they continued to mislead the Companies Office.

In July 2016, it filed another declaration to the Companies Office, this time saying JEVIC followed VINZ saying that its ultimate owner was the Japan Export Vehicle Inspection Centre Company LTD. JEVIC had been owned by the Optimus Group for a year and had already notified NZTA.

It appears in the intervening time NZTA had decided it was unhappy with the ownership structure of JEVIC and VINZ.

NZTA sent JEVIC and VINZ a “please explain” letter in March of this year. NZTA wanted to know when Optimus became the ultimate owner of the two companies, and why the disclosure had taken so long.

In a letter released under the OIA, NZTA told JEVIC and VINZ it had been informed the ownership change took place in 2013, and asked the companies explain. A response from the companies informed NZTA that this was incorrect, but told NZTA that the ownership change had taken place in March 2015.

At this point, NZTA reprimanded the companies. JEVIC and VINZ had inadvertently confessed they were not in the “throes” of an ownership change in 2016. Their own letter showed it had taken place a year earlier, in 2015.

The companies wrote back to explain.

They replied that there was a “difference of opinion” between Optimus and VINZ about the “requirements of the deed of appointment” relating to the requirement to disclose their ownership ownership.

This is unusual as it is generally understood that the ultimate owner of a company should be declared to the regulator.

The correspondence with NZTA says JEVIC and VINZ agreed that it needed to disclose the potential conflict of interest, which is why it notified NZTA in 2016.

Three months after NZTA’s letter, JEVIC and VINZ both amended the record at the companies office, stating their ultimate owner was the Optimus group. This was done on July 24, 2017 - two years after Optimus acquired the company.

The changes at the Companies Office were made ahead of Optimus’ IPO in Japan on December 26, 2017.

Correspondence between JEVIC, VINZ and NZTA ultimately resulted in the agency issuing a formal warning to the companies for failing to disclose a conflict of interest “as soon as practicable after it became aware of it” and for not seeking NZTA’s approval before JEVIC change ownership.

NZTA ultimately agreed that while the ownership structure of the companies created the “potential” for a conflict of interest, the agency was satisfied the conflict did not in fact materialise.

In a letter to NZTA released under the Official Information Act, JEVIC and VINZ sought to assure the agency that it had appropriate conflict of interest policies in place.

The companies said staff are required to sign “conflict of interest” documentation. Deloitte, an auditing firm, had also audited the companies and found no evidence of conflicts of interest.

But many in the industry say this is not good enough, as it still disregards the standard that cars cannot be tested by the same company that owns them.

Outcry from the Industry

There has been considerable outcry from the industry at what is seen as a dismissal of essential safety regulations.

AA vehicle safety spokesperson Stella Stocks told Newsroom it was bad practice.

“It’s never good practice to have an interest in a vehicle that you’re inspecting because inspections need to be independent,” stocks said.

“The public needs to be able to trust that when they buy or get into a vehicle that it’s safe.”

Editor of car review website dogandlemon.com, Clive Matthew-Wilson told Newsroom the companies should have their licences to import and test revoked.

“It’s a rule of good governance that you don’t certify cars you have an interest in,” he said.

Matthew-Wilson also said it was symptomatic of the epidemic of poor vehicle safety checks that had swept New Zealand and pointed to a corrupt industry.

“It’s as bad as it looks: one side of the company imports the cars, the other side inspects these cars and declares them safe,” Matthew-Wilson said.

“The rules are quite clear: you're not allowed to do safety inspections on vehicles you have a financial interest in,” he said.

He called on NZTA to take action and strip the companies of their licences to import and certify vehicles.

”If the average driver behaves badly, their licence is revoked as punishment. When a large corporation behaves badly, they get a warning letter from the Government as their punishment. This is totally unacceptable: the Government must act to restore public confidence,” he said.

Newsroom has also spoken to a number of industry members who are concerned that a large company can not adhere to regulations with impunity.

They are also concerned that Optimus, which now controls every stage of the import chain, can undercut their own businesses.

Highlights problems at NZTA

NZTA has recently been in the spotlight after it was revealed the agency had taken a light touch approach to its role of making sure vehicle testers were up to scratch, causing Transport Minister Phil Twyford to express his “extreme disappointment in the agency”.

Twyford said the agency had taken an “education and trust” rather than an enforcement approach to its role as regulator.

Representatives from the Optimus Group, including VINZ, were approached for comment. They declined, saying their Japanese parent would make a statement on Thursday afternoon New Zealand Time.