The costly business of cars
EXPENSIVE: THERE ARE REASONS WHY WE PAY SO MUCH FOR WHEELS IN SOUTH AFRICA
Some creative thinking is needed to address what is a big problem.
Very few business sectors will be immune to Covid-19, but some, like the auto industry, seem more likely than others to be in need of a ventilator. For the middle-class-and-up in SA, car ownership has become as much a membership card as it is a necessity, fueled by aspiration, geography and the limitations of its public transport system.
And the new vehicle industry benefitted big-time from the rapid growth of this segment of society: a new taxpaying-elite, all hungry to get out of the bus lane and experience the joys of drivethrough fast-food, both literally and figuratively.
Twenty years ago, middle-class car ownership was estimated at 78% and 50% of people bought cars that had zero kilometres on the odometer when the keys were handed over. But in BrandMapp, we’ve seen a steady decline in those stats over the past decade and in 2020, we measure total ownership at 72%, with only 40% of them being new car owners.
Official figures show a slow decline in sales with final numbers for 2019 slipping below 540 000 off an historic high of somewhere near 700 000.
Perhaps consumers have finally realised that owning and running a car is absurdly expensive.
In Germany, an average entry level car (like a VW hatchback) would cost about €26,000 and the average salary is €46,500 (about R560 000), so you’d have to spend 56% of your annual gross salary to buy the car.
In the UK, you’d have to fork out 57%, in the USA, you’d be looking at 48% and by the time you get down to Australia, you’d only need to blow 30% of your annual earnings.
But for South African salary earners, the number is ... 125%.
In real terms, new cars here cost four times what they do in Australia. But, we have a substantial motor industry in SA whereas theirs died a slow death with the last Holden rolling off a production line in Adelaide back in 2017.
We make more than 500 000 cars a year locally. It’s the largest manufacturing sector in South Africa’s coughing and spluttering economy, accounting for about 33% of our total output, employing more than 100 000 people directly and 350 000 indirectly.
No wonder the government put in something called the Automotive Production and Development Programme a few years back in an effort to keep it fit and healthy.
But what if government is more of a problem than a solution? And how come the same right-handdrive car that’s “made in SA” and exported Down Under ends up costing R50 000 less?
We do have one of the most sophisticated car markets in the world where consumers expect ABS, air-con and high specs as standard, ending with built-in service plans.
But last year, Toyota SA suggested that taxes account for at least 40% of the purchase price of cars in the R200 000 to R900 000 range. By most accounts, manufacturers make less than 10% on turnover and dealers work on even smaller margins.
Thanks to import duties, ad valorem, VAT, the CO² tax on vehicle emissions and the tyre levy, however, there’s one big winner in the industry and that’s the taxman!
To get some insight, I turned to a long-time insider who flipped a switch: it turns out we don’t actually have a “motor manufacturing” industry in this country.
“That’s a misnomer”, he said. “Most cars produced here are made up of 60 to 80% imported parts and they are all taxed. So what we have is a ‘vehicle assembly’ industry.”
And that’s the heart of the problem. According to Wesbank’s latest “monthly mobility basket” rating, the average cost of owning and running an entry-level new car, including instalments, fuel, insurance and maintenance, is R7 851: almost 30% more than five years ago.
One solution would be the radical therapy suggested by my insider: “Shut down the industry, import all the cars and stop the import duties.”
That’s 100 000 jobs and a lot of gravy poured down the state drain. Unlikely.
Some creative thinking however, sorely needed.
De Kock is director of storytelling at WhyFive Insights who produce BrandMapp, SA’s largest annual independent landscape study of economically-active adults. is,
For more information visit or e-mail info@whyfive.co.za.