Thabang Mokopanele
9 June 2008
Johannesburg — FOUR years of booming sales accompanied by huge investments have come to a screeching halt as the motor industry faces the spectre of dealership closures and widespread job losses.
The motor industry, which has been a direct beneficiary of the expansion of the economy at an average rate of 5% every year since 2004, is now in the doldrums due to consumers' dwindling discretionary income .
With everything from food to fuel prices rising in tandem with interest rates, the glory days of the industry's double-digit growth in sales are over.
Adding salt to the wound is the Reserve Bank's threats that it might hike interest rates between 50 and 200 basis points this week, squeezing consumers' pockets even further.
Last month, public holidays, price increases and xenophobia-linked social turmoil were other reasons for the year-on-year 23,4% monthly sales decline.
Reduced sales volumes, shrinking margins and high funding costs have already resulted in the closure of a number of franchise and used-car dealerships.
Over the past eight months at least 50 dealerships of the 1400 countrywide have closed .
The National Association of Automobile Manufacturers of SA (Naamsa) warned last week that another hike to the cumulative 450-basis-point rise in interest rates since June 2006 would probably lead to further downsizing, business closures and job losses.
"The monetary authorities should take account of the sociopolitical and economic challenges facing the country and the implications in terms of consumer and business sentiment," Naamsa executive director Nico Vermeulen says.
Last month's vehicle sales -- with 12095 fewer cars sold -- represented the biggest decline in nine years .
The commercial vehicle market, which has been the mainstay of the industry, is also starting to feel the pinch of higher interest rates.
This year to date, three out of the four market segments now show a decrease in sales compared to the prior year.
Passenger vehicle sales were down 19,1%, light commercial vehicle sales declined 9% to 14860 units, and the medium commercial vehicle sector recorded 912 sales, a 0,4% drop.
The only saving grace is the heavy commercial market, which rose 15,6% to 1982 units.
The motor industry is the country's second-largest employer in the industrial sector. More than 300000 people are employed in the manufacturing, distribution, financial services, retail and after-sales sectors of the industry.
"The possibility of further interest rate increases is undermining the propensity to buy new cars. Should significant increases materialise, sales are likely to decline even further, which will make job losses inevitable," Brand Pretorius, chairman of McCarthy Motor Holdings, says. The McCarthy group has closed five dealerships and has 125 left, he says.
"We are in challenging times, which necessitates plans aimed at protecting the viability of our businesses and livelihood of employees. Retrenchments remain the last option," Pretorius says.
John Pascoe, owner of two Nissan dealerships, Lexus and Audi, says most consumers are moving away from big cars to smaller, fuel efficient cars.
"It is now obvious that the industry is facing serious challenges, among them rising fuel prices, dwindling discretionary income and a move to eco-friendly cars," Pascoe says.
"Dealerships are closing down and we see it all over the place because margins are under pressure and stock holding costs are high. It is tough out there because all these businesses are going through a cycle which needs players who are resilient -- because we have been here before," he says.
According to analysts, at least 4000 cars are repossessed every month and banks are also losing money because they have to auction these cars at a lower price than they are worth.
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