Used car market recovering, Cosatu battle to take toll – CMH

21st April 2015

By: Irma Venter

Creamer Media Senior Deputy Editor

  

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While group revenue at Combined Motor Holdings (CMH) remained unchanged at R10.7-billion for the year ended February 28, compared with the previous 12 months, operating profit increased from R317-million to R326-million.

Within the group’s motor retail business, CMH new-vehicle sales declined 0.6%, seen against a 2.6% decline in the national dealer market in the brands that the group represented.

“Encouragingly, sales during the last quarter were up 11%,” noted CEO Jebb McIntosh in a results briefing in Johannesburg on Wednesday.

Despite expectations of an increase in used-vehicle sales for the year ended February 28, as a result of new-vehicle price increases, both national and group unit volumes declined 5.9%.

However, used-vehicle sales improved 4.4% during the last quarter.

CMH expected this trend to continue as the depreciating rand placed pricing strain on new-vehicle manufacturers, with the used car market expected to grow 5% in 2015.

The JSE-listed group opened four new Mazda and six new Datsun operations on premises already established as Ford and Nissan dealerships, respectively, said McIntosh.

A further Mazda, two Mitsubishi, and an Iveco branch will be opened during the first quarter of the new financial year.

McIntosh said sales of MG and Maxus vehicles, which were manufactured in China, had not met expectations during the year under review.

“The brands are not viable at the current exchange rate.”

However, CMH would continue to sell the Chinese imports, noted McIntosh.

CMH’s car hire division saw a 3.5% increase in rental days sold, coupled with a 1.8% improvement in average daily rental rates.

This CMH division had recently announced the launch of a van and truck rental division, which would be leveraged off the existing infrastructure.

In addition, under the brand name ‘Restart’ it would market the hire of older vehicles, typically to fill temporary gaps in corporate fleets, for periods averaging 90 days.

During the year under review, CMH continued executing its decision to close its marine and leisure division.

“Market surveys indicate that, following years of decline in consumers’ disposable income, expenditure in this area has been steadily eroded,” said McIntosh.

“The emerging black middle- and upper-level income groups have shown little interest in this form of leisure activity.

“This appears to be a little bit of a sunset industry.”

COSATU BATTLE TO TAKE ITS TOLL
McIntosh expected the year ahead to be hampered by power outages and labour unrest.

“A lack of strategic planning over an extended period, particularly with regard to maintenance of Eskom’s ageing infrastructure, has manifested in rolling blackouts which are hugely disruptive to the economy.

“There appears to have been a breakdown in Eskom's lines of authority and responsibility at leadership level, and this does not bode well for a speedy solution. Within the group, an investment in alternative energy sources for over 100 dealerships and car hire depots is prohibitively expensive and impractical.”

McIntosh added that “the recent expulsion of Cosatu's leader highlights the problems that have beset this government-aligned labour union. Affiliates will be faced with the choice of remaining part of the existing union, or building a more independent alternative. The struggle to gain membership support will be contested in each workplace with a Cosatu union. Very often these battles turn violent, with paralysing consequences, and act as a deterrent to foreign investment in the country.”

Within the automotive industry, the outlook was towards a stable new-vehicle sales market, with an expected marginal decline in passenger car sales, offset by an improvement in the light commercial sector.

The weakening of the rand would, however, result in price increases and a continued trend in favour of lower-priced and used cars, said McIntosh.

The group has capacity for earnings growth by continuous elimination of under-performing outlets, and maximising the opportunities to drive further volumes through its existing infrastructure, said McIntosh.

The group recommended a final dividend of 65c a share.

CMH noted that its board had proposed the repurchase of 21.1-million shares at a price of R11.83 a share.

 

Edited by Creamer Media Reporter

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