Overstocked Motus faces slowing South African new-vehicle market

15th September 2023 By: Irma Venter - Creamer Media Senior Deputy Editor

Following seven months of trading, it is clear that the South African new-car market is unlikely to reach the 540 000 to 560 000 units expected at the beginning of the calendar year, says Motus CEO Osman Arbee.

Speaking at the company’s results briefing for the financial year ended June 30, he said the 2023 market was now expected to reach somewhere between 520 000 and 540 000 units.

“It is clear the market is tight.”

The exception was, however, the domestic heavy-truck market, which continued to perform well, especially as struggling State-owned rail operator Transnet was indirectly forcing cargo on to the country’s roads.

Arbee noted that factors such as loadshedding and rising interest rates continued to dent consumers’ pockets and confidence.

New-vehicle instalments had increased by 30%, on average, this year, which further boosted the buying-down trend already evident in the market for the last few years.

Arbee said the entry-level segment made up about 25% of the domestic new-vehicle market, with midlevel vehicles at 65%, and the premium market at 10%, down from 20%.

Motus was not active in the zero to R200 000 new-vehicle space, but rather in the R220 000 to R1.2-million market.

Arbee admitted that current trends were “hurting” Motus, with small-car specialists such as Suzuki, as well as lower-priced Chinese importers, growing their share of the market.

However, he believed that Motus would “be okay” if it could hang on to its position of selling one out of every five new cars in South Africa.

Arbee also noted that the used-car bubble from 12 months ago had dissipated, with this market again trading normally.

Motus is mainly a vehicle importer (the Hyundai and Kia brands included), as well as a vehicle and parts retailer. The group operates dealerships in South Africa, the UK and Australia.

Arbee said the group saw new-vehicle sales in South Africa drop by 9% in the 2023 financial year, to 95 418 units, with used-car sales down 4%, to 85 752 units.

Fortunately, sales in the UK and Australia were much healthier.

Going forward, Motus’ strategy was to continue to diversify in terms of geography and income streams.

Currently, Motus saw 46% of its earnings before interest, taxes, depreciation and amortisation (Ebitda) coming from nonvehicle sales (such as parts sales) and the remainder from vehicles sales. The target was a 50:50 split.

Also, about 73% of Ebitda flowed from South Africa, with the aim for this to be limited to 65%.

One battle Motus faced in the next 12 and 24 months was that it was overstocked by between 10% to 20%, with the company now forced to trade out of this situation responsibly so as not to impact on its used-car business, for example.

The current situation, created mainly by many new-vehicle orders arriving almost simultaneously, had a negative effect on the group’s working capital and debt levels.

Free cash flow generated from operations was R90-million in the 2023 financial year, compared with R4.8-billion in the previous year.

Inventory for the year ended June 30 was R32-billion, up from R19-billion in the previous year.

In order to remedy the situation, Motus was talking to vehicle manufacturers about slowing down “the stock coming at us”, said Arbee.

The group also had to sell more vehicles, which it aimed to do by incentivising staff to increase their sales targets. There would also be targeted marketing and promotions to increase sales.

All noncritical capital expenditure would also be postponed.

Motus increased total revenue in the year ended June 30 by 16%, to R106.3-billion, with operating profit up 14%, to R5.7-billion.