Bleak future for motor retail industry

Vehicle sales have plummeted by 50% from 2006 levels, while some smaller franchisers have seen volume losses of 70%, he said.

Over the past 14 months 150 franchise dealers and 200 independent used-vehicle dealers have closed down, which has cost the industry 9500 jobs?

Pretorius said more dealerships would have closed were it not for onerous lease agreements. If a facility wanted to close down and still had obligations in terms of the lease agreement, then the dealer would have to “take the entire lease agreement knock on the nose”, he said.

In 2006 the majority of analysts were forecasting growth through to 2012, with vehicle sales of 1-million a year on the horizon. However, car sales peaked at 714000 in 2006 and the forecast for this year is 385000.

“Instead of experiencing growth we have experienced a severe slump and this is happening against a backdrop of steep cost increases,” Pretorius said.

But he conceded that there was an abundance of reckless lending in the good times. “Momentum was created out in the market and, frankly, we fell for all the good news. Now we've woken up.”

The tough conditions, brought on by the credit crisis and a resultant slump in vehicle demand, is expected to last until at least the first quarter of next year.

Pretorius, who is chairman of McCarthy Motor Holdings, said at the Automechanika exhibition last week that extensive rationalisation of franchise businesses was inevitable to sustain the industry. “We have too many dealers.”

Margins in the industry had shrunk substantially and were at 1,3% for new vehicle sales, down from 4%, and 1,6% for used vehicles, down from 4,2%.

“The current business models are simply not delivering sustainability. It is affecting our industry in a very profound way,” he said.

But Pretorius also had harsh words for manufacturers with unrealistic stipulations on franchise dealerships. He cited an instance where a manufacturer insisted on the use of a doormat which had to be imported at a cost of R70000. Unrealistic standards were being imposed on retailers.

“The manufacturers cannot continue with one-sided relations. They will have to come to the assistance of dealerships,” he said.

Pretorius also asked for more favourable business terms from car makers and importers to restore margins.

lerouxm@bdfm.co.za

Source: Business Day

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