Times are tough, but the rich can still splash out
October 31, 2008
If ever there was an indication that the wealthy were insulated from much of the pain inflicted on ordinary folk by economic slowdowns and global financial market crises, it could be found in the reaction of South African consumers to the world launch of the limited-edition Mercedes-Benz SL 65 AMG Black Series at the Johannesburg International Motor Show.
It was first priced at a cool R3.9 million, but this has already increased to R4.2 million because of the rand's depreciation.
Only 14 of the 350 units to be produced were allocated to South Africa, but the sales of the first four units started about two weeks ago and were concluded before the vehicle's launch yesterday.
Mercedes-Benz South Africa has already started discussions with other prospective buyers and expects to sell the remaining units allocated to South Africa within the next 10 days.
That's a tidy bit of business at a time when the local economy - and most consumers - have been suffering because of the steep increase in interest rates since June 2006, high inflation and cost increases, now compounded by the fallout from the global financial crisis and the subsequent depreciation of the rand. This declining economic environment has led to high levels of mortgage bond foreclosures, and house and vehicle repossessions, reflecting the pain ordinary consumers have no choice but to bear.
Eckart Mayer, the divisional manager of Mercedes-Benz Cars in South Africa, said the country was ranked as AMG's sixth or seventh most important market. The limited edition SL 65 AMG Black Series was mainly bought by successful entrepreneurs, usually in cash deals.
Mayer said that although the price of the vehicle was increased last week, the new price guide was still attractive when compared with the list price in Germany and a conversion into rands, with the relevant import taxes added on.
The ability to spend this freely can apply only to a select few in South Africa. Despite the current economic woes and stock market devastation, they can still proclaim: "I'm all right, Jack!"
Going digital
South Africa has finally switched on the digital television broadcast signal.
Yesterday the minister of communications, Ivy Matsepe-Casaburri, announced at a conference held by the International Telecommunications Union (ITU) that migration to a digital platform from analogue had begun.
Not only did the department of communications and the minister steal the limelight of the ITU, they hijacked the briefing from the broadcasters.
For weeks the SABC, e.tv and M-Net had planned to hold a briefing yesterday.
So why did the government decide at the last minute to hold the press conference at the ITU event and not at an event organised by the broadcasters?
Maybe Matsepe-Casaburri wanted to brag to those countries that were yet to begin, showing the conference delegates that South Africa had heeded the ITU's call to migrate to a digital platform and had imposed its own deadline of 2011 to switch off the analogue signal. It was a symbolic switchover because the official date is tomorrow. This was supposed to be a low-key affair, because from Saturday, broadcasters will start running trials for about six months.
It's a government-led initiative and a historic project for the country. Who better to announce the start of the migration period, which we have known about for many years, than the minister herself?
Although the initial switch-on date is tomorrow, consumers will not see any difference immediately, except those selected by the broadcasters for the trials. Broadcasters will each select about 3 000 consumers for the trials, which will run until April.
The mass of consumers will receive the digital signal only in the second half of next year, when the converters, which will be subsidised by the government for poor consumers, are ready.
Smoking profits
It will be interesting to see how much local pension funds will move to increase stakes in British American Tobacco (BAT) now that they can hold the share directly, instead of diluting it with Richemont's luxury interests, or Remgro's banking and other interests.
BAT offers steady sales, global geographic diversity and earnings in pounds - just about everything a fund could want in uncertain times, unless, of course, holding tobacco is against the ethical rules of a fund. But there are risks cigarette companies face, including litigation over health, as has been seen previously.
Sales are also down in the West, proving that high government sin taxes, regulation of smoking and banning of advertising do cut demand.
Over time, as emerging markets mature, taxes and restrictions may well be increased in these countries.But the current deep downturn will be long gone by the time that happens. However, some emerging markets may be tempted to raise sin taxes right now as the prospect of falling company earnings, resulting in falling tax collection, in more cyclical sectors, looms.
In this country, BAT has responded to the advertising restrictions by changing the packaging on cigarette boxes. The change is a gradual evolution and creates a talking point among smokers about a brand. It is believed that innovation of the actual cigarette product is the next step in marketing: expect fags that change taste midway through a smoke.
This is a far cry from adverts of old that used freshness of breath, health, and, indeed, the fact that doctors smoked, to sell the product. Long-term family investments in tobacco companies such as BAT and Philip Morris International may help put many children and grandchildren through tertiary education, but one wonders if cigarette companies will still be a top investment choice when the next generation goes through its recession.
Edited by Peter De Ionno. With contributions by Roy Cokayne, Thabiso Mochiko and Tom Robbins
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