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Sales incentives and soft loans prop up vehicle sales

Pressure from manufacturers for dealers to hold more inventory ‘unrelenting’ – CMH.
With some 1 400 fewer new vehicles being sold each month in SA this year, CMH’s renewed focus on its used vehicle operations has paid off. Image: Luke Sharrett, Bloomberg

Only the proliferation of sales incentive schemes and subsidised finance rates prevented national sales of new passenger and light commercial vehicles from declining by more than 3.5% in the six months to August, said JSE-listed vehicle retailer Combined Motor Holdings (CMH) on Tuesday.

The weakening in new car sales reflects a difficult economy, where consumers continue to feel the pinch.

Jebb McIntosh, the chief executive of CMH, added that there is a continued trend towards lower-priced models and attributed the decline in the new vehicle market to weak growth in the embattled economy.

McIntosh said the used car market did not fare any better, with an estimated 4-5% drop in sales over the period.

Mixed fortunes

He said overall CMH’s retail motor division recorded a 1.9% rise in pre-tax profit in the six months to August but the contributions from the new and used vehicle sales departments reflected mixed fortunes

With some 1 400 fewer new vehicles being sold each month in SA this year, CMH’s renewed focus on its used vehicle operations paid off. Image: Luke Sharrett, Bloomberg

McIntosh said the decline in new vehicle sales volumes by the group was only 2% compared with the national decline of 3.5%.

However, he said trading margins remain under pressure as dealers compete for market share and the pressure from manufacturers to hold more inventory is “unrelenting”.

Mark Dommisse, chair of the National Automobile Dealers’ Association, said the South African franchised motor dealer environment is under huge pressure.

“The market is down and a growing number of dealerships are in ICU [intensive care unit] with a direct potential loss of jobs as a result,” he said.

Downward trajectory

Dommisse said the market is headed on a downward trajectory towards a point of difficult return.

He said a total of 326 295 new vehicles were sold on dealer floors in the year to September, a 3.7% decline compared to the first nine months of last year.

“This represents 12 555 fewer vehicles sold in 2019, or just under 1 400 units a month. This is a significant number,” he said.

McIntosh said CMH’s renewed focus on its used vehicle departments has been well rewarded, with sales volume growth of 1.8% complemented by improving margins and resulting in pleasing profit growth in a depressed and competitive market.

He added that the parts and service departments increased their profit contributions to the group while First Car Rental retained its revenue level despite a decline in both the national business and tourism sectors.

Margin squeeze on rentals

However, McIntosh said car rental trading margins remained squeezed between rising fleet holding costs and competitive forces that constrain hire charges.

He said the fleet utilisation rate has been maintained and the operating expenditure increase limited to 3.3%.

The reduced margin on disposal of the retired fleet was the most damaging effect on operating profit in the car rental division, he said.

McIntosh said the financial services division recorded a substantial 30% improvement in profit, which was brought about by a combination of increased premium income and a reduction in claims.

He added that the financial services division is in the process of being restructured to reduce operating costs and the full benefit of this will be felt over the next 18 months.

CMH grew revenue by 2.6% to R5.7 billion in the six months to August from R5.57 billion in the previous corresponding period.

However, McIntosh said 1.5% of this growth was attributable to the acquisition of two new dealerships.

Operating profit declined marginally to R200.07 million from R200.17 million.

Pressures set to continue

Looking to the future, McIntosh said the pressure on discretionary income and low business levels is expected to continue throughout the group’s financial year.

He added that business confidence remains low and has been exacerbated by the government’s indecision and lack of remedial implementation in key economic areas.

He said from a CMH group perspective, improvement would hinge on the bedding down of new acquisitions, disposal of loss-making operations and a small uptick in new vehicle sales volumes.

An unchanged interim dividend of 61c was declared.

 

CMH share price over the past five years

 

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Go and visit a used & imported vehicle market in Georgia (Eurasia) for example, to see what people pay for used vehicles in a less tariff-protected market, that is SA.

https://autopapa.com/en

Have fun. Some car examples are almost half-price to the SA used car market!

“Rustavi Car Market” one stop shop, from licences, inspections, banks, change of ownership, etc done in no time, at one large place.

In the late seventies a large color TV was about 50% of the price of a one ton Japanese “bakkie”. Today a 65 inch TV with modifications unknown in the seventies retails for less than 10% of a “bakkie”. Shouldn’t the motor manufacturing industry start giving the public value for money (as does the highly profitable electronic industry) in order to increase sales rather than moan and groan about interest rates and ever extending installment periods?

Truly only a bakkie driver could fail to understand why an established technology is not dropping in price as fast as a maturing one.

Mercedes Benz, the luxury premium brand has a margin of 6 percent on a vehicle. What do you think the margin is on your commercial vehicle? Prices will go up because safety features are needed for you lot who insist on driving your families around in commercial vehicles designed for hauling rubble.

End of comments.

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