The Standard of SA Motor Dealership Facilities
The biennial Johannesburg International Motor Show, owned by NAAMSA (the National Association of Manufacturers of South Africa), comes at an opportune time for motor dealers. Talking to industry players the Motor Show can only be beneficial to the business of the NADA dealers.
The good news, says Derik Scorer, chairman of the National Automobile Dealers Association (NADA), is that the standard of SA motor dealership facilities “stands up against anything in the world.” The bad news is that dealers are having to work as hard as ever to gain a return on their investment.
Following the dealer bloodbath of 2008-2010, that saw hundreds of SA automotive businesses close down because of the recession-driven vehicle market collapse, the survivors are generally more cost-aware and business-savvy.
They need to be. For though the new-vehicle market continues to surprise with its better-then-expected growth, profit margins remain painfully thin. Manufacturers and dealers are offering all kinds of discounts and incentives to keep market momentum going. It’s nowhere near as bad as Europe, where some groups are promoting two cars for the price of one, but it’s still tough, says Scorer.
Fortunately, even if there’s not much profit direct from new-vehicle sales, there are opportunities elsewhere in the business. “Parts and service are a very important part of dealers’ business model”, says Scorer. “Margins there are higher.”
Used-vehicle sales are also starting to make a bigger contribution. Sub-inflation new-vehicle price rises in recent years have forced down used to almost unproductive levels. But now manufacturers say they can no longer absorb input costs and some have begun to accelerate prices. As a consequence, used vehicles are also starting to climb.
As one door opens, however, others threaten to close. Many dealers have enjoyed a steady income from customer referrals to finance and insurance companies. Some manufacturers have had a presence in these markets for years but now Scorer is fearful more may follow suit and hijack a source of dealer profit.
“There is a risk but that would be dangerous,” he says. I hope it doesn’t happen.”
He also hopes manufacturers resist the temptation to introduce “stair-step” incentives, which are becoming common in North America. Manufacturers set a series of escalating sales targets, each of which offers a higher cash bonus. These bonuses can be so high, that some dealers sacrifice their margins to shift stock. In effect, they are losing money now to make it later – not a sustainable business model. The closer they come to bonus time, the more of a loss they are prepared to take on the selling price. Dealers aren’t the only ones who hate it: so do previous customers who see others paying far less for the vehicle than they did.
SA dealers are already “hard-pressed” to reach quarterly sales targets, says Scorer.
Despite all these challenges, he says this is “a good time to be a dealer”. The recession taught valuable lessons about business and survival. And however tight the market, “if someone had said to us a few years ago that there would be 5%-10% market growth, we would have leapt at it”.
With most forecasters predicting steady, if not spectacular, market growth in coming years, some dealer groups are actively looking for new acquisitions, says Scorer. He adds: “This is the right time to be in this business.”
The Johannesburg International Motor Show runs from 18 – 27 October with 16 and 17 October being media and industry preview days.