Gear­ing down

En­try level ve­hi­cles now a re­ces­sion­ary ne­ces­sity

Finweek English Edition - - INSIGHT - SVET­LANA DONEVA svet­lanad@fin­

ASSOCIATED MO­TOR HOLD­INGS (AMH) has been the dark horse of the ve­hi­cle in­dus­try in South Africa. The dis­trib­u­tor of Asian ve­hi­cles emerged from ob­scu­rity to record phe­nom­e­nal sales growth lev­els over the past year, mak­ing it the dar­ling of par­ent com­pany Im­pe­rial’s sta­ble. How­ever, in­di­ca­tions are AMH has reached its peak. The car in­dus­try’s old boys’ club has wo­ken up to the re­al­ity of a post-re­ces­sion con­sumer pref­er­ence for smaller ve­hi­cles and launched a full-on at­tack into the en­try-level seg­ment.

“SA as a so­ci­ety is get­ting poorer,” says CEO Manny de Canha. “Around 40% of the cars sold in two to three years’ time will be en­try level cars.” One of the big­gest fac­tors con­tribut­ing to the trad­ing down­trend is Gov­ern­ment’s un­re­lent­ing drive to tax any­thing on wheels – start­ing from fuel levies and car­bon taxes and end­ing with the still un­der-de­bate toll road tax in Gaut­eng, SA’s eco­nomic hub. Oth­ers loom­ing on the hori­zon in­clude a po­ten­tial ring-fenced tax to up­grade the coun­try’s oil re­finer­ies, as vaguely in­di­cated in a re­port is­sued by En­ergy Min­is­ter Dipuo Peters last month.

Ve­hi­cle fi­nanc­ing num­bers re­flect the trend. Wes­Bank, one of SA’s big­gest ve­hi­cle fi­nanciers, re­cently re­ported the num­bers of cars fi­nanced in­creased by 47% in first quar­ter 2011 while the ac­tual rand value of loans in­creased by just 25%.

AMH’s sales growth in 2010 was log­icde­fy­ing. Na­tional As­so­ci­a­tion of Au­to­mo­tive Man­u­fac­tur­ers SA (Naamsa) fig­ures show AMH and a few mi­nor im­porters sold 58 049 pas­sen­ger cars last year, 74% more than the pre­vi­ous year, with the Hyundai Getz and Kia Pi­canto among the win­ning mod­els. AMH is housed in

Im­pe­rial’s dis­trib­u­tor­ship divi­sion – the sin­gle big­gest con­trib­u­tor to both rev­enue and profit in its 2010 fi­nan­cial year.

In the op­po­site cor­ner of the ring, sales of SA-pro­duced cars in­creased by 21% over that same pe­riod – still an achieve­ment, given the fact the in­dus­try ground to a near stand­still in 2008/2009. That was then: car man­u­fac­tur­ers since have changed their tac­tics.

Volk­swa­gen was first to the party, swiftly re­plac­ing its long-run­ning City Golf model with the com­pet­i­tively priced Polo Vivo in Fe­bru­ary last year. At the Vivo’s launch to me­dia, MD Dave Powel pre­dicted the Vivo’s tri­umph over East Asian im­ports thanks to South Africans’ long-stand­ing affin­ity with the VW brand. He was right. The Vivo has been re­peat­edly ranked num­ber one in terms of pas­sen­ger ve­hi­cle sales in Naamsa’s monthly fig­ures.

“The en­try level mar­ket is highly com­pet­i­tive and will be­come more com­pet­i­tive in the fu­ture,” says Bill Stephens, com­mu­ni­ca­tions head at VW SA. “The Polo Vivo is the heart­land of our brand in SA.”

Ford’s re­sponse was the Figo, an In­dian built re-work­ing of its sec­ond gen­er­a­tion Fi­esta, which was re­leased into the SA mar­ket in third quar­ter 2010. This year will see the lag­gard – Toy­ota – en­ter the mar­ket with its Aygo, fol­low­ing a pro­tracted ab­sence since pro­duc­tion of the Tazz ended in 2006. Like­wise, Nis­san will be re­leas­ing its new gen­er­a­tion en­try level Mi­cra in May.

AMH isn’t too con­cerned. Not yet any­way. De Canha is con­fi­dent the group will be able to main­tain its fiercely fought-for cor­ner in the ex­pand­ing play­ing field. Growth, how­ever, is a dif­fer­ent story.

TOY­OTA AYGO En­ters the mar­ket this year

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