CMH finds tougher market in financial year

JSE-listed vehicle retailer Combined Motor Holdings’ (CMH) CEO, Jebb McIntosh, says the difficulties caused to the vehicle retail market by the tough economic environment mean that “many times we have to sell a car 10 times to get it approved and through the system”.

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McIntosh adds that even then some prospective buyers still cannot make up their mind because they have lost a lot of confidence and say they will hold back on finalising the transaction for another month or so.

He says the difficult economic environment has been caused by the political uncertainty created by South Africa’s pending general elections and a number of other factors, including high interest rates and a volatile currency.

“We have high interest rates, with the prime rate up to 11.75%, which is 10 increases.

“It’s the highest in 14 years and this, together with the weak currency, are the two key issues from our perspective.

“It’s effectively a double whammy for us because our consumers, with their bonds and car repayments all doubling over the past year or two, are very stressed and the banks have tightened their lending requirements. So it makes it very difficult,” he says.

McIntosh says currency weakness almost directly leads to ongoing price increases, which again affect the affordability of vehicles.

“Currently, stats show that 80% of the vehicles sold are below R500 000. There are a lot of cars over R500 000 in today’s market, which only take up [account for] 20% of the volume,” he says.

McIntosh says the market is also difficult because overall it has moved from an undersupply position of vehicles to a completely oversupply position as the stock came through and various original equipment manufacturers (OEMs) overestimated their market shares.

He says all manufacturers are grossly overstocked, adding the knock-on effect of this has been heavy discounting and lower margins because of depressed trading values on used cars.

McIntosh says many vehicles are financed over 72 months and 84 months, and this brings its own challenges because at these high interest rates, it now takes up to 55 months “to get a break square on an instalment sale vehicle” and makes it more and more difficult to get people out of their existing motor car and to sell them a new car.

“Then on the other side, we have massive pressure from manufacturers to sell more cars, so it does end up that the profitability in used car departments are being affected,” he says.

McIntosh says that in CMH’s financial year to end-February 2024, national new vehicle sales were 1.2% lower than in the previous year, with passenger vehicle sales down 1.2% and light commercial vehicle sales up 10.8%.

He reckons CMH’s sales in the financial year were down 1.9% but the national sales figures “only indicate the trends because there are so many pre-reports on the system and cars are now converted from new cars to demo cars, which are reported and then sold off the used car lot”.

McIntosh says new vehicle sales on a calendar basis are still lower than in 2019, which means the market has not made a full recovery yet from the COVID-19 pandemic.

He says the forecast is for new vehicle sales in 2024 to increase to 514 000 units from 499 000 units last year but that “will depend very much on the interest rate picture going forward.

“Interest rates are key to our business and consumer health.

“The national passenger and light commercial market was flat for the year, and this calendar year hasn’t started well because it's -4% year-to-date to April,” he says.

He adds that overall they are very pleased with CMH’s financial results.

It reported a 3% growth in revenue to R12.83 billion while operating profit improved by 1% to R781.1 million.

Headline earnings per share dropped by 12% to 541.8 cents.

A dividend of 220.0 cents per share was declared, 83% lower than in the previous year.

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