New and pre-owned vehicle distributor Combined Motor Holdings (CMH) Group, which yesterday posted robust interims, has projected tough economic conditions for South Africa in the next six months.
“Rising interest rates, and worsening power cuts, which have slowed the momentum of new vehicle sales, are set to continue to bring despondency to the economy,” the company said.
New vehicle sales were hampered by continued disruption to the supply chain due to a shortage of electronic chips, it said.
Also creating a drain on consumers’ disposable income was the surging petrol price.
"Ongoing, and more severe, load shedding has played havoc with business productivity, and necessitated costly investment in alternative power sources,“ it added.
The South Africa Reserve Bank (SARB) has successively hiked interest rates in the past 12 months.
This, as well as stricter and “more restrictive lending criteria applied by finance houses,” had placed “a considerable strain on vehicle affordability” in South Africa.
Vehicle manufacturers have also been exerting pressure on retailers and distributors to increase sales volumes in order to gain market share as a means of reducing their inventory levels.
Additionally, volume incentive schemes by vehicle manufacturers are expected to drive trading practises, leading to a squeeze in gross margins for dealerships such as the CMH Group.
“The national new car market is not expected to show further month-on-month increases over the balance of the calendar year. This is evidenced by the number of deals initiated by customers and approved by the finance houses, but where the customer has a change of heart and declines the purchase,” it said.
In the interim period to the end of August 2022, the CMH Group recorded an 11.7% rise in revenue, boosted by stronger new vehicle sale prices as well as robust sales volumes.
Its vehicle hiring and financial services segments helped bump up the gross profit margin for the period from 17.2%t to 19.7% on the back of elevated “trading returns” compared to those obtaining for the vehicle retail and distribution segment.
There was a 22% rise in sales and administration costs, about 33% of which went to employee remuneration.
Nonetheless, the CMH Group lifted headline earnings per share for the period by 51% to about 302 cents. It will subsequently pay a 168 cents per share dividend for the interim period, representing a 53% strengthening in the dividend paid compared to the previous comparative period.
“The gross dividend payable is R125 667 357 and will be distributed from income reserves,” the company said.
Looking ahead, CMH said both the new and used vehicle markets faced the pressure of rising interest rates coupled with a fall in confidence levels.
However, offsetting the negatives was the recent news that the oil price was falling, albeit off a very high base, and that would provide welcome relief at the petrol pumps.
Earlier this year, CMH Group CEO Jebb McIntosh said, “Poor economic and political policy is likely to continue” this year.
He also noted that owing to continued load shedding – which Eskom set at Stage 4 this week – was likely to persist as a result of the utility’s inability to provide a sustainable power supply.
This had pressured the CMH Group to “develop ways to minimise the disruption” in line with other South African corporates that were embracing solar and hybrid batteries.
“South African households are facing increasing financial pressure, and the proportion that can afford a vehicle is low. Despite these factors, national sales of new vehicles are expected to grow 10 percent, and spawn a similar increase in the used vehicle market,” said McIntosh.
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