The Arrive Alive website received an interesting email earlier today from a regular visitor with interesting insights on the motor industry in South Africa. The information shared was provided by Investec to clients after some interesting research and discussions with motor manufacturers.
I gained permission from Peter Amitage of Investec to share these insights:
“We recently attended an Auto day hosted by Macquarie, with presentations from Mercedes Benz, Hyundai, Kia, Naamsa, Wesbank, Absa and others.
Among the industry experts, the forecasts for vehicle sales growth for 2011 ranged from 12% to 20% and from 8% to 15% for 2012. Most made the point that sales are still well off their highs and that pent up demand is still pretty strong. Year to date growth is in excess of 25% (January and February) and Naamsa projects 8 to10 quarters of growth from now.
Wesbank indicated that all the metrics are pointing in the right direction and there are still plenty of “good customers” who have the capability and willingness to buy. Applications are in an upward trend and likewise so are approval rates (now 42.7%). The July 2008 low was 34%. One interesting point Wesbank made is that approval rates are now permanently below the 75% range reached in 2007. This is because prior to the introduction of the National Credit Act (NCA) consumers did not have to disclose their other debts and hence financiers often did not have a full picture of a client’s financial situation. Thus the level of bad debts that were experienced in 2009 and 2010 are unlikely to be repeated in future.
Imperial distributes both Kia and Hyundai and the presentations gave some insight as to how these brands grew by 74% in SA last year compared with overall market growth of 24%. Both brands are exploding globally and are showing well above market growth in most territories. Kia has grown its global sales by a compound 37% for the last five years, with the global financial crisis not featuring on its growth path. The value/design/quality offering has improved markedly and there are plenty of new launches in SA this year for both brands.
Kia projected 33% growth for its brand this year and Hyundai over 20%. Hyundai sells twice the volume of Kia, so combined growth should be in the region of 22%. With some price increases, turnover should be up in the region of 30% in 2011. Another important point is that there are five years of parts and service revenues from these cars, so this locks in future turnover as well, with management estimating that 50% of distributorships revenue being of an annuity nature.
The biggest impediment to growth of these brands is access to stock. Globally both brands are approaching capacity from a production perspective and Hyundai reckons it could have sold 54 000 vehicles last year in SA (they actually sold 43 000) if it had had enough stock. The SA allocation is increasing disproportionately to the global average as SA is a strategic market and a profitable market (car prices are higher than average). Further investments are being made in increased capacity.
Both Hyundai and Kia hired industry design experts (from BMW and Audi) and we are likely to see this pattern repeated by the Chinese, where Imperial represents Chery.
Imperial will sign another five year distribution agreement with Kia in November (already agree in principle) and Hyundai signed a five year agreement with Imperial last year.
Other interesting points:
• Car prices went up 4.3% in SA last year (3% of this came from the new carbon tax).
• World car sales are 78 million units a year. SA is 0.7% of that.
• The SA peak was 740 000 in late 2006 and last year’s sales number was 490 000.
• The auto industry contributes 6.5% to SA GDP.
• SA imports and exports around 250 000 cars.
• SA export quality is good and the SA-manufactured Mercedes Benz won the award for best quality import in the US last year.
• AMH (Imperial) has 13.6% market share in SA. This is third behind Toyota (20.5%) and VW/Audi (14.3%).
• The top selling car in SA last year was the Polo Vivo.
• The average loan to value on a new car is 92%.
• The ratio of used to new car sales is 1.5:1.
• The average contract term of a new car loan is 58 months and the average contract term is 42 months (people sell their cars on average after 3.5 years).
• 50%-60% of the cars on the road are uninsured.
• The rate of applications for new car loans is at a record high, but approval rates are lower (mainly because of NCA revealing the full balance sheet of a consumer).
• Corporate loans are still 30% off their highs and have only recently started to increase, led by “yellow metal” (Caterpillar and Bell).
• 13% of car sales are into the car rental market (constant for a few years).
• Wesbank are the leaders in vehicle financing by a mile, with 42% market share. [Peter Armitage. Investec]”