Car dealers cruise through tough sales environment

Johannesburg - Vehicle dealers appear to be riding out the storm caused by the slump in new vehicle sales this year because of the depressed economic environment.

Year-to-date there has been a 12.4 percent decline in new passenger vehicle sales, an 8.9 percent drop in light commercial vehicle sales and an overall reduction in new vehicle sales of 11.3 percent.

But Warren Olsen, the chief executive of Sewells MSXI sub-Saharan Africa, the local subsidiary of the global consulting and outsourcing firm that concentrates on the retail motor industry, said South African motor franchise dealers continued to exhibit tenacity and were obviously using innovative strategies to keep their businesses profitable.

The monthly analysis of a large percentage of local dealers by Sewells MSXI revealed that their benchmark dealers, the top 30 percent, had raised their gross profits by 0.69 percent in the first half of this year compared with last year.

This was attributed largely to slightly improved margins on new and used vehicle sales.

Sewells MSXI said the median top 50 percent of the dealers were in a similar position with year-to-date gross profit for the first six months of the year up by 0.83 percent.

Overall profit before tax was higher for both the benchmark and median groupings, with new and used vehicle sales the main contributors.

There was also positive growth in the important overall return on operational assets, with the benchmark dealers showing an increase of 12 percent and the median grouping up by 6 percent.

Olsen said they were very happy with the way the dealers they assisted with managing the financial side of their businesses were faring in these tough economic times. “These results show how well dealers are managing the combination of new and used vehicle sales, parts and service sales as well as income from finance and insurance to keep their businesses on a solid footing.”

Gary McCraw, the executive director of the National Automobile Dealers Association, which has a dealership membership of 1 360 dealers, said there had been some consolidation of dealerships but had not seen wholesale closures of dealerships like in 2009.

“We have seen dealers tightening up on expenses and focusing on pursuing every sales opportunity that comes their way and following through on these opportunities,” he said.

McCraw said the vehicle retailing environment was “very difficult and tight” but dealers had become resilient and had learnt from the 2009 slump.

“During that phase (2009), they put in a lot of processes to control costs and that has held them in good stead. They really cut a lot of fat and cost out of the system,” he said.

However, McCraw admitted that if the economy continued to deteriorate, it would negatively impact consumer spending and new vehicle sales and as well as dealer sustainability.

McCraw added that many people focused on vehicle sales but franchise dealers had various departments, including used cars, workshops, parts, finance and insurance, which tried to maximise the valued added products taken with every vehicle sold.