Prospects for man­u­fac­tur­ers, deal­ers dim

Big guns lose bil­lions in write offs

Finweek English Edition - - Cover -

IN ITS PRIME, the ve­hi­cle man­u­fac­tur­ing in­dus­try pro­vided jobs for one in seven peo­ple in the United States and it made a com­pa­ra­ble con­tri­bu­tion to the coun­try’s gross do­mes­tic prod­uct. The three big guns of yes­ter­year in the US are all on the verge of bank­ruptcy.

Last year, Gen­eral Mo­tors had to write off more than US$30bn. Ford wrote off $8,3bn in sec­ond quar­ter 2008 due to a sharp fall in the sale of its pop­u­lar F se­ries of trucks and SUVs. That’s a sec­ond record for Ford. Just as its Model T was the best seller for many years, now the F se­ries prob­a­bly has the dis­tinc­tion of be­ing the ve­hi­cle that’s lost the most in a sin­gle quar­ter.

The ac­com­pa­ny­ing di­a­gram comes from Smartmoney’s handy Map of the mar­ket and shows clearly how the listed mo­tor man­u­fac­tur­ers fared on the New York Stock Ex­change over the past year. By the way, both Daim­ler (that’s Mercedes-Benz) and Honda each has a mar­ket cap­i­tal­i­sa­tion of $60bn. Com­pare that with Gen­eral Mo­tors’ $6,7bn. Even Tata, with a value of $3,9bn, is sneak­ing up on GM – for many glo­ri­ous years the world’s largest ve­hi­cle man­u­fac­turer. Toy­ota’s mar­ket value is around $150bn.

In SA there’s not a sin­gle listed mo­tor man­u­fac­turer. Toy­ota was the last one. But there are five large or­gan­i­sa­tions whose wel­fare is di­rectly linked to the ups and downs of SA’s ve­hi­cle in­dus­try.

We’ve grouped Com­bined Mo­tor Hold­ings (CMH), Su­per Group and Im­pe­rial Hold­ings on one graph in or­der to show how bad it’s go­ing in the trade. CMH is the clos­est to a pure dealer. It’s not specif­i­cally linked to any man­u­fac­tur­ers and its re­tail out­lets cover just about the whole spec­trum of avail­able cars in SA. More than 90% of the group’s profit comes from the ve­hi­cle re­tail trade and its earn­ings per share for the year to 28 Fe­bru­ary 2008 have al­ready more than halved. The graph shows the group’s share price has fallen on an in­dex ba­sis from 100 in July 2007 to the cur­rent 38. That’s even more than the fall in car prices.

Su­per Group is do­ing even worse, though ve­hi­cle re­tail makes up a smaller por­tion of its profit. The group is cur­rently try­ing to at­tract large amounts of money with a rights is­sue of new shares at 400c, while its shares on the JSE are al­ready trad­ing at a low 360c. On an in­dex ba­sis, its share price has al­ready fallen from 100 in July last year to the cur­rent 26. Ouch.

Im­pe­rial Hold­ings, cre­ated and built up from a sin­gle ve­hi­cle dealer by the late Bill Lynch, has also bogged down. An­a­lysts pre­dict its profit for the year to 30 June is also half of what it earned in its pre­vi­ous fi­nan­cial year. Its share price is cur­rently only about 30% of its value of a year ago.

The poor per­for­mances by the three com­pa­nies’ share prices over the past 12 months – and es­pe­cially the high debt bur­den of Im­pe­rial and Su­per Group – are a warn­ing that the cur­rent cri­sis in SA’s ve­hi­cle re­tail trade could force those com­pa­nies into in­ter­est­ing re­struc­tur­ing and group­ing over the next year or so. We’d like to pre­dict even now that SA’s com­pe­ti­tion au­thor­i­ties will be look­ing at many such pro­posed trans­ac­tions over the com­ing year.

Bar­loworld and Bid­vest are grouped on a sin­gle graph, as the two stronger com­pa­nies may per­haps be able to col­lect many of the crumbs of the mo­tor re­tail trade. In fact, Bid­vest picked up McCarthy Re­tail a few years ago when the lat­ter couldn’t sur­vive the in­crease in in­ter­est rates in 1998 and again in 2002.

Whether any of them will be al­lowed to, or be at all in­ter­ested in pick­ing up any of the crumbs is an open ques­tion.

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