Mon, 06 Jul 2020

The extended lockdown has had a "devastating" impact on car dealerships, with the whole industry essentially having to "freeze" trade. But dealers are optimistic that sales could pick up, particularly for used vehicles, as lockdown restrictions ease.

During a webinar hosted by Absa and the Mail & Guardian on Friday, representatives from the automotive industry weighed in on the challenges created by Covid-19 not just for production, but also distribution and sales.

Speaking on dealerships, Mark Dommisse, the chairperson of the National Automobile Dealers' Association, said that the extension of lockdown from the initial three weeks had implications for staff, who operate on a "no work, no pay" principle. Through the lobbying of the National Association of Automobile Manufacturers of South Africa (Naamsa), workshops managed to reopen sooner, which is vital for dealerships, Dommisse said.

Consumers under pressure

Faisal Mkhize, managing executive of Absa Vehicle & Asset Finance, said the lack of sales activity was felt strongly in the market. "Looking at the numbers now, while there is a slight improvement we see happening, it's clear consumers are under pressure," he said. About 42% of clientele opted for a payment relief scheme. A similar mechanism has been introduced to provide relief to dealers who are unable to move stock, he said.

While consumers may be pressured, Mkhize said the industry is expected to "bounce back", perhaps not to the same levels of 2019, but an improvement is likely.

On a more positive note, Dommisse said that dealerships are adequately positioned to operate safely during the pandemic, and spacious enough to ensure social distancing between clients. By operating on an appointment basis, they can keep footfall low. Dealerships have also been equipped to screen customers.

The industry expects workshops to be busy, with repairs for vehicles which may have been parked for too long.

"On the sales side, we see resilience in the used car market ... the new car market is still a bit weak," he said. During April, new car sales plummeted by a whopping 98.4%, with trade virtually grinding to a halt. In May, sales picked up slightly, but were still down 68% compared to the previous year.

READ | SA new vehicle sales still in the doldrums despite small improvement

Dommisse said there are a lot of reasons people would want to still buy cars, particularly to scale down given the difficult economic environment as SA battles a recession. The Reserve Bank projects that the economy will contract 7% this year.

The depreciating rand will see car retail pricing rise 10% over the next quarter, making used vehicles more attractive than new vehicles to consumers with lower buying power, Dommisse explained.

Rental companies may even have to "defleet", with the tourism industry also taking a knock during this time. Rental cars are well maintained, they have to be kept neat and clean and without scratches, which make them an attractive option for buyers, said Dommisse.

Weak link

Mike Mabasa, CEO of Naamsa, commented on the interlinked nature of the industry which has also created difficulties.

"What happens in other markets in other parts of the world impacts us very directly, because our global supply chain is interlinked," said Mabasa. If one link in the industry's chain does not work, then the entire chain is weakened, he explained.

"We've seen many of our counterparts in vehicle producing countries indicate 2020 is going to be a difficult year for them. SA is no exception," said Mabasa. Naamsa projects a 25% decline in production and exports for the industry, which contributes close to 7% of GDP.

This will have implications for jobs too, but Naamsa is still assessing the extent of the impact.

"Job losses are definitely inevitable. When you lose a quarter of production capacity, without a doubt there will be casualties," he said.

The industry has approached government to assist with liquidity challenges brought on by Covid-19, but Mabasa said it was not requesting a bailout, but rather a deferral strategy allowing players to restructure their working capital to meet immediate commitments. Naamsa is also reaching out to other sectors and financiers for assistance.

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