CMH expects flat sales in 2023

Combined Motor Holdings (CMH), the JSE-listed vehicle retailer and distributor, is pessimistic about new-vehicle sales growth this year.

Toyota Hilux 2020 228

Jebb McIntosh, the CEO of CMH, has differed from naamsa’s sales forecast for 2023 and believes the new-vehicle market will be “lucky” to achieve flat sales this year.

“I would not be surprised if the market was 5% down year-on-year,” he says.

This is despite McIntosh admitting there were “gaps” in the monthly new-vehicle sales figures in 2022 in the months when Toyota South Africa’s production plant in Prospecton in Durban was closed because of flood damage, resulting in lower total new-vehicle sales.

The industry body, naamsa, has forecast that the domestic new-vehicle market will remain resilient this year and is expecting a single digit increase in national new-vehicle sales during the 2023 calendar year.

McIntosh’s pessimism about new-vehicle sales stems from the deterioration of the financial health of consumers and households.

He says the nine interest rate hikes have put the average consumer under extreme financial pressure and, together with increased load-shedding, have made most consumers negative.

The banks have also tightened their passing criteria for financial deals, he says.

McIntosh says national sales of passenger and light commercial vehicles increased by 11.4% in CMH’s financial year to end-February 2023 and the dealer sales component by 7.8%, while CMH’s sales in this period grew by 12.4%.

He highlights the volatility in the motor retail market in the year. McIntosh says the first seven months of CMH’s financial year were characterised by a continuation of low new-vehicle supply and COVID-19-related shortage of components, Toyota SA’s plant shutdown because of flood damage, car hire companies being unable to refresh their fleet, resulting in the traditional source of one to two-year-old used vehicles drying up and used-vehicle prices soaring.

However, McIntosh says that from October and November 2022, new-vehicle stock began arriving, Toyota SA’s plant was back in production, the improved new-vehicle supply resulted in the used-car market collapsing and dealers being left holding over-priced inventory and having to adopt a rapid change in strategy to reduce overpriced units.

There was a significant shift in profit contributions of the various components of CMH’s business.

The profit contribution of motor retail and distribution, which was at 64% in 2019 and 57% in 2020 but increased to 86% in 2021, fell back to 66% in 2022 and still further to 44% in 2023.

In the same period, the profit contribution of the car hire business, First Car Rental, remained stable at 17% in both 2019 and 2020 but slumped to -2% following the COVID-19-pandemic lockdowns and increased to 23% in 2022 and 43% in 2023.

McIntosh admitted this is “quite a dramatic change in our model”.

He says CMH’s motor retail profit declined by 19% in the group’s 2023 financial year.

McIntosh attributed this largely to additional interest costs because of higher stock levels and interest rates, the mini collapse of the used-car market in the second half, the closure of the group’s independent used-car operations, a certain amount of margin pressure and the cost of setting up its operations for Proton, the Malaysian vehicle brand it is distributing and retailing in South Africa.

CMH reported a 23% growth in headline earnings per share to 617.1 cents in the year to end-February 2023 from 501.0 cents in the prior year.

The group’s gross profit increased by 15.8% to R2.39 billion and its gross margin to a record 19.3% from 18.5%.

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