Banks put brakes on trucks and buses

Finweek English Edition - - Business Strategy - Thomas Hem­merich FRIK ELS

WHILE THE PASSENGER – and es­pe­cially the light com­mer­cial ve­hi­cle mar­ket – con­tin­ues its down­ward spi­ral, South Africa’s truck and bus mar­ket held up re­mark­ably well in 2008, thanks to the con­tin­ued shift from rail to road, Gov­ern­ment’s in­fra­struc­ture and trans­port projects and a healthy al­beit slow­ing construction sec­tor.

A to­tal of 34 664 trucks were sold in 2008 and al­though that fig­ure is down 2 403 units from 2007’s record year, it still rep­re­sents the sec­ond high­est an­nual vol­ume ever recorded by the mar­ket, fig­ures from the Na­tional As­so­ci­a­tion of Au­to­mo­bile Man­u­fac­tur­ers of South Africa (Naamsa) show.

How­ever, as with cars, con­di­tions wors­ened con­sid­er­ably to­wards year-end 2008. The first de­cline only reg­is­tered in Oc­to­ber but sales of heavy trucks and buses fell a dis­mal 35% in Jan­uary com­pared to last year. With the fun­da­men­tals in SA ap­pear­ing strong, why then the sharp de­clines and the some­what de­pressed out­look for 2009? Thomas Hem­merich, chief ex­ec­u­tive of MAN Truck & Bus South Africa, blames the banks. “In south­ern Africa and the rest of the con­ti­nent there isn’t a de­mand prob­lem – quite the con­trary. It’s just that banks have tight­ened their lend­ing cri­te­ria – for ex­am­ple, re­quir­ing op­er­a­tors to have a min­i­mum turnover of R100m – to such an ex­tent it’s forc­ing the smaller guys out of the mar­ket. And smaller op­er­a­tors make up the vast ma­jor­ity of our clients.”

That flies in the face of Gov­ern­ment’s ob­jec­tive of open­ing up the in­dus­try to smaller op­er­a­tors. Mercedes-Benz SA’s com­mer­cial ve­hi­cle divi­sion launched just such a pro­gramme in 2007, in part­ner­ship with the Na­tional Empowerment Fund and the In­dus­trial De­vel­op­ment Cor­po­ra­tion. The R330m first round of fund­ing has al­ready been dis­bursed and by all ac­counts the project has been a suc­cess for owner-driv­ers and small op­er­a­tors.

MAN says credit ap­provals have all but re­versed: from 20% of applications be­ing de­clined it’s now closer to 70% to 80%. Nis­san Diesel, SA’s num­ber one medium truck brand, re­ported in its an­nual fore­cast a sim­i­lar drop in credit ap­provals.

By con­trast to the tough times for the small guys, Hem­merich says ma­jor op­er­a­tors he’s talked to say they’ve never had it this good: they can sim­ply wait to cherry pick con­tracts from smaller com­pa­nies that are strug­gling. If that trend con­tin­ues it could see the SA mar­ket be­ing dom­i­nated by a hand­ful of large com­pa­nies.

Says Hem­merich: “It’s ironic, given that our fi­nan­cial man­age­ment sys­tems have al­ways been much more strin­gent and con­ser­va­tive than in Europe. Here we place the fac­tory or­der only once fi­nance has been se­cured. Else­where, or­ders are placed even be­fore a sale is made and buy­backs flood­ing the used marker are plac­ing se­vere strain on man­u­fac­tur­ers in Europe.”

Hem­merich, who joined MAN SA in June last year from his po­si­tion as di­rec­tor for the Ger­man mar­ket, re­mains op­ti­mistic about the African mar­ket (MAN SA in Jo­han­nes­burg is re­spon­si­ble for the en­tire con­ti­nent). “We’re looking over­all at a more or less flat mar­ket on the con­ti­nent. I have sym­pa­thy for my suc­ces­sor in Ger­many. He has to deal with a 30% drop in vol­umes and new and used stock pil­ing up in the thou­sands. In Africa we ac­tu­ally have a short­age of used ve­hi­cles.”

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