Prospects for manufacturers, dealers dim
Big guns lose billions in write offs
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.