Future Group – Standard Bank Vehicle and Asset Finance







Published by Gerald Ferreira Date: September 27, 2012
Categories: General News

Future Group/Standard Bank Vehicle and Asset Finance Auto Annual Panel Discussion, Michelangelo Hotel, Sandton

Outlook Positive for SA’s Motor Industry

Though South Africa’s local motor industry was under pressure from issues such as the high cost of fuel, the exchange rate, labour unrest and the potential for political instability, forecasts for sales growth were positive, the trading environment buoyant for new car buyers.

This was the message from an automotive panel discussion hosted today (Thursday, Sept 27) by Johannesburg-based publishing house, The Future Group, in conjunction with Standard Bank’s Vehicle and Asset Finance division.

Opening the discussion, the Future Group’s Managing Director, Richard Lendrum, revealed that voting for the 2013 Standard Bank People’s Wheels Awards had closed earlier this week, with aspects of the popular online survey eclipsing benchmarks set in 2012 when the project was launched.

Votes were currently being audited by research house TNS South Africa, and results would be made public at the launch of the 2013 Auto Annual at the People’s Wheels Awards presentation event to be held on 5 December in Johannesburg.

“Together with Standard Bank’s Vehicle and Asset Finance division, we aim to make the event one of the most enjoyable and enlightening on South Africa’s automotive calendar,” said Lendrum. “From the inception of the People’s Wheels Awards and the Auto Annual project, the intention has been to give voice to one of the most significant cogs in the motor industry machine: the consumer.”

TV-personality Jeremy Maggs chaired the panel discussion, themed Affordability, Choice and Demand: the Road Ahead for South Africa’s Vehicle Market. Panellists included Brian Smith, Head of Fleet and Pre-Owned at Renault South Africa; Derik Scorer, Chairman of the National Automobile Dealers’ Association (NADA); Keith Watson, Head of Sales for Standard Bank Vehicle and Asset Finance; and Roland Reid, Marketing Director for Jaguar Land Rover South Africa.

The first area of discussion, whether or not South Africa’s vehicles were over-priced, met with resounding consensus from panellists. “We’ve seen negative growth in car prices when compared to the country’s inflation rate over the last four years,” they said.

Scorer added: “Certainly, with interest rates moving down as they have over the last three years, I think we’ve put consumers into a position – particularly with the introduction of the National Credit Act in 2007 – where they can look forward to the cost of ownership being vastly enhanced.”

Furthermore, Scorer noted that the industry’s major players, both importers and manufacturers, had made significant efforts to include service and maintenance plans as part of new car deals, upping value.

Smith agreed, confirming that motor manufacturers had looked closely at the question of affordability. He deemed them to have been dynamic, in conjunction with financial partners, in developing financial solutions to allow consumers to afford new vehicles.

“That’s where a lot of the focus is at the moment – you’ll find a lot of OEMs [Original Equipment Manufacturers] focusing on payment options particularly, including payment holidays,” he revealed.

“I think our economy is on a good footing and people are increasingly able to make their repayments, but there is still scope to move, and room in the market for innovative products.”

Smith elaborated that ‘innovative products’ included the likes of 72-month terms on new finance agreements, reduced need for deposits, residual payments and guaranteed buy-back campaigns similar to the one run by Renault South Africa in 2011.

In response to an assertion that even budget vehicles were unaffordable to the common South African, Reid pointed out that the common South African had neither a job nor an education, and therefore any discussion involving the automotive industry involved only the fraction of the market able to finance vehicles.

Though affordability was always a key issue, Reid said that aspiration was by far the dominant factor in purchasing decisions. “Your passion is what drives your affordability,” he said. “What we find at the top end is that fewer people finance their vehicles, so they have disposable income and can write a cheque or send money via EFT.”

On the latter point, Scorer noted that in August, Porsche South Africa had sold 261 vehicles locally through three dealerships in the country – Cape Town, Durban and Johannesburg – and that the sales had been driven mainly by expensive Cayenne models, not the cheaper Boxster.

Similarly, Smith revealed that 60% of Renault Sandero sales in South Africa were driven by the most expensive of its three derivatives: the crossover Sandero Stepway, emphasising the importance of aspiration, even at the budget end of the market.

The Challenges Ahead

Selling cars was not simply about benefiting from buyers’ aspirations, however. Panellists agreed that the South African automotive industry faced several challenges, some under local control and others beyond it.

In response to a question from the floor regarding the viability of vehicle leases, a particular aspect of South African culture came to the fore. According to Watson: “A typical consumer has an obsession with ownership, believing that he or she will make money when it comes to re-selling the vehicle.”

Reid concurred with this viewpoint, noting that changing this entrenched belief system would be a long-term initiative for the local automotive industry. According to Reid, the only scenario in which South Africans were more receptive to vehicle leasing was when shopping for company cars through car allowances.

Smith said that another of the reasons for lease reluctance was the perception that ownership would allow for more flexible trade-ins, whereas leases did not. Noting the trend of younger buyers to aspire to cars which were more expensive than they could afford, Watson explained that responsible leasing could, in fact, see banks willing to accept more risk in agreements, thereby enabling younger drivers to trade-up sooner.

When the possibility of additional vehicle assembly plants being established in South Africa was raised, Scorer was cautiously optimistic. Though he felt that the present growth rate of the automotive market was not large enough to support additional assembly plants immediately, on the back of robust export markets, opportunities existed for additional manufacturers who could exploit these opportunities in the medium-term and meet production benchmarks.

On this point, however, Reid said that labour issues were of concern in South Africa, with the motor industry having been subjected to a reasonable amount of unrest. According to Reid, large local manufacturers were always under pressure to meet demanding contractual export schedules.

Extraneous cost of ownership problems included the fuel price, the fluctuating exchange rate and the looming possibility of e-Tolling, although panellists agreed that the fuel-levy approach of the Opposition to Urban Tolling Alliance (OUTA) had their support.

Scorer noted that the cost of mandatory comprehensive insurance – required by finance houses before approval could be obtained for new vehicle loans – was linked to crime rates, and also posed a barrier to entry for younger, first-time buyers with high-risk insurance profiles.

Affordability Before Environment

Although Reid felt that South Africans were becoming increasingly environmentally conscious, affordability was still the primary concern in a vehicle purchase. “Alternative fuel sources in vehicles today are very expensive: there is a cost premium,” he confirmed. Watson agreed, saying that in his experience buying decisions were purely aspirational, with vehicles’ carbon emissions having no impact at all.

According to Smith, fuel consumption was key for customers, given its direct financial impact. For this reason, Renault was part of the global drive amongst OEMs for smaller engines featuring similar power outputs to their thirstier predecessors.

According to the panellists, Government’s “green tax” – based on the amount of CO2 emissions a vehicle produced – appeared to have had little impact on purchasing behaviour. Scorer expressed a preference for incentives for motorists to buy low-emissions vehicles over further punitive taxes.

In this regard electric vehicles had recently received a lot of international focus, but Scorer was adamant that, in his view, their popularity would remain low in South Africa given the size of the country and the cost of the recharging infrastructure. He speculated that dual-power hybrids – with petrol or diesel engines supplementing electric motors – could be feasible for a small segment of vehicle buyers.

Despite these challenges, the panellists agreed that the future looked bright for the South African automotive industry. Scorer predicted that the local vehicle market would see a 10% growth in 2012 compared with 2011, while Watson felt that the figure for 2013 would settle at between 5% and 8% growth.

Reid cautioned that the impact of unexpected international events – such as the Japanese tsunami of 2011, the global economic recession or the terrorist attacks of 9/11 in the United States – could still negatively affect South Africa. Scorer felt that the oil price and political stability following the upcoming ANC conference in Mangaung would also be decisive for the country.

Smith, however, was unrestrained in his optimism. With Renault South Africa set to launch the new Clio 4 and Duster into the local market, he said: “From the consumer’s side it’s a great time to buy, and from our side it’s a great time to be in business.”