Vehicle trade-in values are creating consumer pressure
A SHARP downward adjustment in used vehicle values, particularly in the luxury segment, had created pressure for consumers who wished to trade-in and recycle their vehicles every three to four years.
Jebb McIntosh, chief executive of listed-vehicle retailer Combined Motor Holdings (CMH), said yesterday that this downward adjustment in values was a consequence of negative new vehicle pricing over the past two to three years.
McIntosh added that the longer periods over which vehicles were financed, coupled with the fall in their residual values, had led to a greater gap between the resale values and the finance settlement values.
He said the car hire market had also been forced to retain its vehicles for longer periods and rent them out at a lower daily rate, because the fall in used-vehicle values had made the retired fleet less saleable.
McIntosh said the national new vehicle market had perpetuated the sideways cycle that had been in place for the past two to three years, with sales levels sustained by a negative movement in real new car prices and robust sales incentives.
He said the sideways cycle in national new car sales was not surprising, given the particularly difficult economic circumstances.
The group achieved a 5 percent increase in new vehicle sales against the backdrop of flat national new vehicle sales. The rise in the group’s luxury model sales was particularly pleasing, because this was a segment that had suffered declining trends over the past three years, he said.
McIntosh said the directors of CMH were satisfied with the marginal increase in headline earnings a share achieved in the six months to August.
CMH yesterday reported a 0.2 percent increase in headline earnings a share to 128.7 cents from 128.5c in the previous corresponding period. Revenue rose 8.8 percent to R5.57 billion from R5.12bn.
McIntosh said the group’s operating results were characterised by increased revenue at a lower trading margin, with the gross margin deteriorating to 16.3 percent from 16.6 percent. Operating profit declined 4.7 percent to R180.65 million from R189.6m.
McIntosh said pricing competition and lower recoveries on the disposal of the retired fleet on the group’s First Car Rental division had resulted in profit before taxation falling 5.7 percent despite revenue increasing 4.7 percent.
He said the 10.1 percent fall in operating profit of the group’s financial services division resulted from a once-off increase of R3.2m to the doubtful debt provision in the records of the group’s joint venture partner following the introduction of a new International Financial Reporting Standard.
CMH shares closed 6.25 percent lower on the JSE yesterday at R22.50.