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Pre-owned vehicles selling for more than book value – Motus CEO

Inflated prices caused by shortages of both new and used vehicle stock on the back of global semiconductor shortage.
The semiconductor shortage is also making it difficult for the industry to supply new vehicles in specific colours or spec levels. Image: Supplied

Pre-owned vehicles in South Africa are selling for more than book value currently because of stock shortages and this trend is likely to persist for at least another three months.

This was confirmed by Osman Arbee, CEO of JSE-listed motor retail group Motus on Wednesday.

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Motus reportedly sells one in every five new vehicles sold in South Africa.

Arbee told Moneyweb that the shortage of pre-owned vehicles has been caused by constraints on the supply of new vehicles globally and in South Africa in the wake of the global semiconductor shortage.

Read: Chip crunch will last through 2022, Toyota supplier warns

However, he said these shortages have not resulted in dealerships starting to see losses due to not having vehicles to sell.

“We are still continuing to sell new vehicles that we have and are being supplied pre-owned vehicles while the workshops and parts business are doing quite nicely as well,” he said.

Arbee said pre-owned vehicles are selling at “retail plus at the moment”.

“Nothing is selling at retail minus. Nobody is talking about book values anymore. Everybody is selling at trade plus.”

“That will continue for a while until we get the supply of new vehicles back to normal, which we think could take up to another three months or so,” he added.

He said that the semiconductor shortage has also resulted in it becoming difficult to supply new vehicle customers with the specific colour or specifications of the model they want to buy.

Read: Used car prices surge as hard-pressed consumers hunt for ‘bargains’

Mikel Mabasa, chief executive of automotive business council Naamsa, also said on Wednesday that global semiconductor shortages continue to negatively affect vehicle production and consequently the international and national availability of premium models in particular.

Big dip for the industry

Arbee said the Covid-19 pandemic has deeply hurt South Africa’s motor industry businesses, with 536 612 vehicles sold pre-pandemic in 2019 and only 380 206 vehicles sold in 2020.

He said the projection is that between 430 000 and 450 000 new vehicles will be sold in SA in 2021, but Motus is projecting slightly better annual total industry sales of between 450 000 and 470 000 units during the group’s financial year to end-June 2022.

He added that Motus is hopeful this growth in sales will come from car rental companies, with Europcar and Tempest and Motus’s competitors starting to ‘upfleet’.

“We are hoping that the market can pick up about 20 000 to 25 000 cars from this [sub] sector by June next year and that will give us some growth as an industry into the 2022 financial year,” said Arbee.

Read: Elon Musk calls Renesas and Bosch’s chip supply ‘problematic’

Mabasa said factors that will stimulate the inevitable new vehicle demand include the positive macroeconomic outlook, rejuvenation of rental fleets, subdued consumer price inflation and interest rates remaining at historically low levels for the foreseeable future.

However, he noted that business and consumer confidence will continue to challenge the industry’s recovery over the short to medium term.

Durban Car Terminal

Jabu Mdaki, managing executive of the Durban terminals at Transnet Port Terminals, said on Wednesday that indications of a gradual automotive industry recovery are evident in the volumes being recorded at the Durban Car Terminal, which have risen by 7% above those achieved in the first quarter of the 2019/2020 financial year, a period before the advent of Covid-19.

He said the terminal is anticipating a record year in automotive, with August 2021 breaking a record by handling 54 520 fully-built units in a single month.

Durban Car Terminal, sub-Saharan Africa’s biggest car terminal, handles most of SA’s car imports and exports. Image: Supplied

The previous handling record at Durban Car Terminal of 51 407 fully-built units was set in June 2021.

Mdaki noted that the terminal recorded volumes 65% higher than budget in the first quarter of the 2021/22 financial year.

He added that as the biggest car terminal in sub-Saharan Africa, the terminal handles more than 520 000 fully built units annually, of which 55% are exports, 10% trans-shipments and 35% imports.

Motus results

Regarding Motus’s latest financial performance, Arbee said the group delivered strong operating results in the year to June 2021 with fantastic cash flows.

He pointed out that Motus increased its overall vehicle unit sales by 10% to 228 633 vehicles from 208 778 vehicles in the previous year, with new vehicle unit sales growing by 6% and pre-owned vehicles by 13%.

The group maintained its market share at 16%.

Arbee said every important financial figure in the year to end-June 2021 exceeded their expectations and is in excess of the group’s pre-Covid-19 number in June 2019.

Read: SA new vehicle sales show encouraging recovery

Motus reported a 78% improvement in operating profit to just under R3.8 billion from R2.1 billion in 2020. It achieved an operating profit of R3.62 billion in 2019.

Revenue rose 19% to R87.2 billion from R73.4 billion – and was at R79.7 billion in 2019.

Headline earnings per share grew by 298% to 1 179 cents from 296 cents – and 1 009 cents in 2019.

Arbee said the “great trading results” led to the board approving a total dividend for the year of 415 cents per share, of which R1.60 has been paid and another R2.55 will be paid by the end of September.

Motus did not declare a dividend in 2020.

Arbee said Motus is committing to delivering stable operating and financial results to June 2022. However, he highlighted a caveat to this commitment, which is that there must not be any further stringent lockdowns and the vehicle inventory shortage must not deteriorate.

Shares in Motus rose 1.8% on Wednesday to close at R94.20.

Super Group

The double-digit revenue growth at Motus was mirrored by JSE-listed transport and mobility company Super Group, which earlier this week reported a strong recovery in the performance of its South African and UK vehicle dealerships operations.

Super Group CEO Peter Mountford said its dealerships in South Africa increased revenue by 19.4% to R8.2 billion in the year to end-June.

He attributed this largely to a sharp increase in the average selling price of vehicles and an improvement of 15.7% in used vehicle sales volumes compared to a decline of 13.9% in the previous year.

The parts and services business performed above expectation despite the impact of delayed service and repair requirements, particularly in the period one year on from the first hard Covid-19 lockdown, he said

Mountford noted that the group’s South African dealership operations increased new vehicle sales by 7% in the year compared to the 20.5% decline in the prior year.

Operating profit of Super Group’s dealership business increased by over 85% to R272.3 million.

The group reported a strong rebound in its overall financial performance in the year. Revenue rose by 14.3% to R39.5 billion, from R34.6 billion. Operating profit improved by 44% to R2.27 billion from R1.57 billion.

Listen to Simon Brown’s MoneywebNOW podcast interview with Arbee (or read the transcript here):

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A few years ago, about two decades back to be exact, fascinated by the obsession of South African males with car ownership and using it as a surrogate for other things that examplify their malehood. Upon my visit to Senegal for several months, I observed a trend there among African young males of the same age as those in South Africa, which caused me to do a very informal but consistent one question study where I asked each group of young men, what is the most important thing that a young man is expected to own to show that he has succeeded. Almost without exception, young men in Senegal pointed to their house that was likely to take a life time to build as they seem to add another floor after another when they got more funds, while their South African counter-parts pointed to cars as the thing that made them feel like they have arrived. I chose to follow the Senegalese. So, I am not surprised if South African’s choose to pay more for a thing that costs less…such as explained.

Yes, but in SA we need a car to take our families to Ballito, Plett and CT.

Expensive cars like Toyota Land Cruiser is the same price as a house.You can sleep in the Toyota land cruiser but you can’t drive the house. LOL

Most South Africans are happy to live in a rented hovel ala pigeon hole and pitch up at friends house in a fancy car so they can impress for a few hours. They then hit retirement and the pension gets gobbled up by the rental.

This is the effect of unsustainable import duties on new cars.

Something has to give.

You are so right. I was offered R240000 for my 6yr Old Audi TT with only 23000kms on the clock. This trade in towards a new TT. costing over R900 000. Not only are import tariffs prohibitive but dealerships are taking advantage of short supply – could they be charged with collusion and price fixing perhaps?

“Nothing is selling at retail minus. Nobody is talking about book values anymore. Everybody is selling at trade plus.”

Thus the book values must increase, if it was actually linked to sales and actual sales pricing?

Therefore insurance premiums will also increase? Book value is the amount insured.

“Nothing is selling at retail minus” – wrong, wrong, massively wrong. Try to trade your vehicle in on another new/ secondhand vehicle at one of the famous big dealerships. Suddenly your vehicle is semi-junkyard status and worth far less than trade, until they sell it again of course. Bunch of sharks on a feeding frenzy, rather got the itch out of my @rse and saved ten of thousands Rand in the process. Loose-loose for me and win-win for them.

Very true, when you want to trade in, your car is junk but once on the forecourt, the same car magically becomes an absolute gem when being advertised for sale. Always been like this, always will, because dealerships (or as they are well known in some areas as “stealerships”) need to make money to pay for their buildings and staff compliment. A 20%-30% markup seems quite common from what I’ve seen.

“Book values” are a dealer tool to ensure they are guaranteed to make money, must not be seen as anything other than that. The theory is simple, dealer buys at trade and sells at retail, simple easy guaranteed margin, just like selling petrol.

In the USA values of second hand vehicles went through the roof due to stimulus payments of $2000 from the federal government to citizens. At the same time production of new vehicles slowed due to chip shortages. For certain models you could sell your 2 year old car for more than the list price of a brand new car, the caveat being there was no stock of new cars.

Friend bought toyota hilux brand new for R105 000 in 1999…..
I bought it off him for R90 000 in 2016…. Sold it for R80 000 in 2020……new owner took it across border to Namibia and sold it for R120 000 few months ago. Not all car brands depreciate at the same levels…. – just imagine the depreciation of a Volkswagen, BMW or Mercedes over that same time period..

Volkswagen? Very popular so little depreciation depending on model. BMW and Merceder… a lot.

Viva private sales. Viva

End of comments.

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