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It’s a tough market out there and it’s not getting better, says CMH

17th October 2018

By: Irma Venter

Creamer Media Senior Deputy Editor

     

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It has been a challenging year for corporate South Africa, says Combined Motor Holdings (CMH).

“The economy has suffered from the after-effects of years of corruption and mismanagement, [as well as] the ANC's recent pronouncement that it intends to amend the Constitution to allow land redistribution without compensation.

“Investor confidence, both local and international, has been dented, causing the economy to enter a technical recession, and currency exchange rates to fall. The domestic economic growth outlook for the remainder of 2018 is weaker than earlier expected.”

It was, therefore, not surprising that the national new-vehicle market continued the sideways cycle that had been in place for the past two to three years, CMH noted in a statement on Wednesday, announcing its financial results for the six months ended August 31.

“Sales levels have been sustained by a negative movement in real new-car prices and robust sales incentives. A consequence of negative new-vehicle pricing over the past two to three years has been a sharp downward adjustment in the value of used vehicles, particularly in the luxury segment.

“This has created pressure for customers who wish to trade-in and recycle their vehicles every three to four years.”

CMH said it had achieved a 5.6% increase in new-vehicle sales for the period under review, compared with flat national new-vehicle market.

Particularly pleasing was the group’s increase in luxury model sales, a segment which had suffered declines over the past three years.

In contrast to this, CMH’s used-car unit sales dropped by 1.7%.

“Longer periods over which vehicles are financed, coupled with the fall in their residual values, have led to a greater gap between the resale values and the finance settlement values,” noted the company.

“The car hire market, in general, has been forced to retain its vehicles for longer periods, and rent them out at a lower daily rate, because the fall in used-vehicle values has rendered the retired fleet less sellable.”

CMH said the financial outlook for the short-term future remained fragile.

The South African economy contracted by 0.7% during the second quarter of 2018 and was expected to grow by less than 1% for the full year.

“Consumers have been hit by the VAT rate increase, and face further fuel price rises. Unemployment levels remain at record highs. On the positive side, interest rates have remained stable, and the stimulus package, announced as part of government's economic recovery plan, will provide some boost to business confidence.”

CMH announced an 8.8% increase in revenue, to R5.57-billion for the period to end August 31. Operating profit declined by 4.7%, to R181-million.

 

 

Edited by Creamer Media Reporter

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