Motor dealers better placed for sales slump than in 2008 crisis
Motor dealers are better placed to survive the latest collapse in newvehicle sales than they were during the 2007-2009 global economic crisis, which was the last time the local market went into free fall, says Mark Dommisse, the head of the National Automobile Dealers Association.
Then, scores of dealers went out of business, leading to a major rationalisation of the sector. Major dealer groups bought up some stragglers and consolidated operations into stronger business units.
There was also a relaxation of the single-franchise system through which manufacturers discouraged dealers from selling more than one brand. Now many dealer groups represent multiple makes, while some individual dealers sell and service several brands from the same site, with separate minishowrooms for each.
Dealer organisations generally have stronger balance sheets today than then. Lessons learnt from that crash have also made them more risk-averse.
Industry figures published last week show that SA sales of new cars and commercial vehicles plunged 29.7% in March from a year earlier. Aggregate sales for the first three months of 2020 were 12.8% behind the same period last year. With the country under Covid-19 lockdown until at least the second half of April, this month’s sales will be dreadful.
Given the uncertainty surrounding the pandemic’s impact, it is anyone’s guess when the market will recover.
The good news for dealers, if one can call it that, is that the market was already in the dumps before Covid-19 arrived and heading for its sixth full-year decline in seven years.
As a result, says Dommisse, dealers have been in defensive mode for some time, with financial caution on their minds and limited stock on their floors.
The economic crisis, by contrast, struck at a time of relative optimism, even though the market had retreated from its record high of 714,315 sales in 2006. Sales of 676,108 in 2007 fell 21% to 533,387 in 2008, then by 26% in 2009, to 395,222.
Many dealers lacked the financial muscle and business skills to weather the storm. Faced with what for some was their first recession, they were blown away.
Dealers’ immediate pain today is just as real, says Dommisse. In 2007-2009, there was still income from sales and workshop services. During lockdowns, there is none.
“If the lockdown continues for the rest of April, dealers will have earned nothing this month,” says Dommisse. “Not one cent.”
TEMPORARY MEASURES
With most of their capital tied up in vehicle stock and with showroom/workshop premises costing, in some cases, hundreds of millions of rand, there’s not a lot of ready cash, says Dommisse. Some of the biggest groups have cash reserves “but that may be hard to access when there’s no money coming in”.
Financial institutions and some landlords are offering temporary interest and rental deferments to tide dealerships over the immediate crisis. So are some motor companies. “But not all,” he says pointedly.
Still, he says, the sector is not in danger of another clearout.
“We learnt our lessons last time round and now we are applying them. It’s going to be very tough for a while but we’ll come through.”
NOW DEALER ORGANISATIONS GENERALLY HAVE STRONGER BALANCE SHEETS TODAY THAN THEN
29.7% the drop in sales of new cars and commercial vehicles in March
6 the number of years out of seven that the market declined