Motor dealers under pressure to remain profitable, says Sewells

South Africa has some of the best-run motor dealerships in the world in terms of the benchmarking of successful businesses, according to Warren Olsen, the newly-appointed CEO of Sewells, the well-known, global consulting and outsourcing firm which specialises in the automotive industry.

001-off-my-wheelsBrian Joss – “Several times in the past the local retail motor dealers have had to face very tough challenges, particularly during the global economic meltdown of 2008/9 when dealer sales of cars and LCVs fell 42.5% in a market that tumbled by 34.1%. But even at this time of financial crisis many of them showed determination and innovation. They managed to fight back strongly as the economy improved,” said Olsen.

“Times are tough again, but nothing like we encountered in those black days in 2008. Dealer sales of cars and LCVs in 2015 fell by only 2.9% versus a market decline of 4.2% when compared to the 2014 figures.”

South Africa “has some of the best-run dealerships in the world. Picture: Quickpic
South Africa “has some of the best-run dealerships in the world. Picture: Quickpic

Sewells currently operates in Asia Pacific, Africa and the Middle East and South African businesses are seen to fare very well when compared with other major countries in these regions. Using the return on average assets (ROAA) as the measure, South Africa’s benchmark is at 22%. This places it ahead of Australia (15.6%), New Zealand (14.5%), China (9.3%), India (16%), Indonesia (6.8%) and Thailand (21%). The only countries that rate higher than SA in this group are the Philippines (32%) and Vietnam (23%).

Here in South Africa Sewells Group analyses the monthly financials of 1 200 plus retail motor dealers and tracks their financial and operational performance. Sewells Group has offered three key solutions: profit, process and people solutions to dealerships to drive performance since the early 1980s.

An important tool is the use of performance groups where representatives of the various dealerships and franchises get together each quarter for self evaluation and to find joint solutions to challenges. This system has been in operation for more than 20 years and is still an important contributor to maintaining leading performance in these businesses.

The latest Sewells indicators of dealer health show that dealer business is still generally profitable in both the volume and luxury sectors of the market, but the luxury end is under pressure and showing a downward trend.

This is requiring remedial action in terms of improving facility and equipment usage and relooking staffing in the affected areas of a company.

Retained dealership profit before tax is showing a similar trend for the two major sectors of the car and LCV markets. However, the ability of companies to turn their total assets is declining on all fronts as is their ability to retail a significant portion of the total gross profit.

The situation is worse in the used car market with the return on gross assets declining for both volume and luxury brands and models. Stock levels are rising too, which is another challenge when there are so many “sweeteners” to tempt buyers into the new vehicle market.

These slowing or downward trends in vehicle sales are making the after sales business even more important as contributors to the overall financial health of a dealership. This all means improving productivity and effective use of assets in these operations to ensure competitiveness in a tight market.

“There is big pressure on the motor retailers to remain profitable in these tough economic times, but I am sure their resolve and resilience will see them once again adapt to the changing circumstances to keep their businesses on an even keel,” concluded Sewells’ CEO Warren Olsen.

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