The economic recovery is not responsible for the demand for new vehicles exceeding the supply – CMH

The perception among some that the economic recovery is responsible for demand for new vehicles temporarily exceeding supply is incorrect, the JSE-listed vehicle retailer Combined Motor Holdings (CMH) warned on Tuesday.

“The reality is that domestic sales levels are considerably lower than the past decade and the return of a plentiful supply will expose the shortage of customers who can afford the purchase of a vehicle. Be careful what you want, ”said CMH CEO Jebb McIntosh.

McIntosh admitted, however, that continued low interest rates, the almost certain surge in the tourism and hospitality industry and the recent decision to lock in Level 1 restrictions should generate a positive macroeconomic future.

Impact of unrest

However, referring to the protests, violence and looting in KwaZulu-Natal and Gauteng in July, McIntosh stressed that the memory of these traumatic events and the government’s failure to institute timely accountability will have a negative impact. on foreign investment for a long time.

McIntosh said the events caused the group an estimated 12% loss in overall profits, with August heralding improved civilian stability and a resumption in confidence levels and new vehicle sales.

He added that although little physical damage to the group’s operations was suffered during the July protests, its outlets in KwaZulu-Natal were closed for a week and then suffered a drop in trade for the rest of the month. .

McIntosh said the November local election would also be disruptive for businesses and, if factions turn violent, will further hurt consumer confidence.

“In addition, as if the local economy did not face enough challenges, another period of load shedding began,” he said.

The best temporary workers in the group

However, McIntosh reported that the retail automotive segment of CMH, the group’s largest company, achieved its best results in the first half of the year after the pre-tax loss of this period last year.

McIntosh said this was due to a 54% increase in revenue, improved trading margins, reduced operating expenses and lower interest rates.

CMH on Tuesday announced a 55% increase in the group’s revenue to R5.5 billion in the six months to the end of August, from R3.54 billion in the corresponding period of the year. last.

The group’s turnover for the reference period was still 3.8% lower than the 5.7 billion rand reported for this period in 2019.

Operating profit improved by 426.5% to Rand 256.1 million from Rand 48.6 million and was 28% higher than the Rand 200.06 million reported in 2019.

Earnings per share jumped 1,529% to 200 cents from the previous period’s 14-cent loss per share and was 65% higher than the 120 cents reported in 2019.

An interim dividend of 110 cents per share has been declared. No interim dividend was declared in 2020.

CMH shares rose 3.42% on Tuesday to close at Rand 26.89.

McIntosh said the improved financial performance of the engine retail segment was achieved despite Covid-19-related overseas plant closures causing disruptions in component supply chains, primarily from China and India.

Shortage of stock

He said the resulting stockouts of new vehicles, however, created the opportunity to improve gross margins and increase accessory sales.

“The shortage of stock of new vehicles has resulted in decreased sales and, consequently, decreased trade in used vehicles. Additionally, it hampered the ability of rental car operators to run aging fleet units. These factors have combined to produce a shortage of suitable and inexpensive used vehicles.

“The result has been that the prices of used cars have increased faster than those of new cars because the demand for high quality inventory has increased,” he said.

Read:

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Used Vehicles Sold More Than Book Value – CEO of Motus

Parts and Service

McIntosh said CMH’s parts and service departments performed well compared to the depression of the previous period, although revenues stabilized following the surge in demand following the lockdown of the ‘last year.

He said this was consistent with both limited economic activity and shorter distances traveled, as many employees chose, and were encouraged, to work from home.

Car rental

Regarding the group’s car rental segment, McIntosh said First Car Rental has achieved “a remarkable recovery from the depths of despair” experienced during the first half of 2020.

McIntosh said fleet size and workforce were judiciously optimized last year without panic or excess, but since then there has been a steady increase in daily rental income and margins.

He said the shortage of replacement vehicles to replenish and refresh the fleet is expected to create short-term challenges and could lead to lost sales opportunities as inbound tourism demand increases.

However, McIntosh said the division had recently secured a supply of a batch of new vehicles, which would ease the pressure, while vehicles in the fleet that were renewed achieved favorable selling prices.

Outlook

He said the lifting of travel restrictions to South Africa by European and British countries was good news.

“The positive impact on the entire travel and hospitality industry during the holiday season and beyond will be enormous,” he said.

McIntosh said CMH directors expect the group to continue to perform well, adding that the shortage of new vehicles is expected to decrease by the end of 2021 and the start of the new year.

Read: Global car sales collapse

Total sales of new vehicles in the domestic market for the nine months up to end of September 2021 at 345,172 units are 30.1% higher than the 265,247 units sold in the corresponding period in 2020, but still 13 lower. , 3% to the 398,290 units sold during this period in 2019..

Mikel Mabasa, CEO of the Naamsa Automotive Company Council, said in July that a full recovery in the new vehicle market would last “until 2023”.

The rate of change in new vehicle sales is considered by economists to be a leading indicator of changes in economic activity.


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