Tight bank rates slow car sales, says Pretorius
September 21, 2009
By Roy Cokayne
Banks were determined to reduce their risk and the benefit of interest rate decreases has only been passed on to their better customers, according to Brand Pretorius, the chief executive of vehicle dealership group McCarthy.
Pretorius told a TransUnion Auto Trends Forum on Friday that a deposit on a new vehicle was not required in terms of the National Credit Act but most banks now required a deposit of between 15 percent and 20 percent, which had had an impact on vehicle affordability.
The deposit requirements of banks and the rates they were charging led to consumers either not buying a car, buying down to a cheaper model or switching from a new to a used vehicle, Pretorius said.
He said the challenge facing vehicle dealerships in the future would be the protection of their after-sales income because of the slowdown in the new vehicle market.
Pretorius said franchise dealers nationally were selling fewer than 20 vehicles a month but urban dealers needed a sales throughput of between 50 and 60 vehicles a month because they had fancy showrooms with very high rentals and low throughput.
"This is at the heart of the viability pressures franchise dealers are feeling," he said.
Pretorius said 250 franchised dealers had closed in the past 18 months to two years and franchised dealers simply could not survive if they did not qualify for the very meaningful variable quarterly sales bonus from manufacturers.
He said the spike in vehicle sales figures at the end of each quarter, which distorted the numbers, had been caused by dealers pushing sales to qualify for this bonus.
If a dealer was 5 percent to 10 percent short of meeting its quarterly target, it registered vehicles, drove them around the block and then put them in its used vehicle lot, he said.
"Our situation is tough. In 36 years in the motor industry I've never experienced such a sudden and steep downturn ever," he said.
Mike von H246ne, the chief executive of vehicle risk intelligence company TransUnion Information Solutions, said massive increases in new vehicle prices were unlikely in the remainder of this year and next year if the rand stayed strong, but the trend of increasing prices for used vehicles was likely to continue in the next six months.
Von H246ne said the new vehicle market was likely to decline about 26 percent year on year to about 390 000 units this year but the used car market was heading for 10 percent to 15 percent growth to about 600 000 units.
He said this reflected the strong relative shift in favour of used vehicles, with the ratio of used vehicles financed to new vehicles financed moving from 1.2 to one to 2.5 to one over the past 18 months.
The tide for the motor industry appeared to be slowly turning, Von H246ne said. This relatively positive outlook was based to a large extent on the fact that the worst of the global financial and liquidity crises appeared to be over, although an increasingly conservative regulatory environment and approach to risk remained.
TransUnion is forecasting 10 percent growth in the new car market next year, with increased fleet and car rental sales in the first quarter and higher private demand in the second half.
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