Franchise dealers holding their own despite tough economic times

The franchised retail motor trade in South Africa is holding up well despite the continuing economic slump and subsequent decline in the sale of new vehicles. This is evident from the retail dealer financial health indicators which are computed monthly by Sewells Group, the well known global consulting and outsourcing company which specialises in the automotive industry.

001-off-my-wheelsBrian Joss – “The indicators for the first quarter of 2016 differ quite a bit when compared to the same data for the first quarter of 2015 but there are still far more positive than negative trends in the various operational divisions,” explained Warren Olsen, the CEO of Sewells SSA.

“Using the key indicator of return on operational assets (%ROOA) we still see a year-on-year rise, even if it is only by 8.3% for passenger car dealers. Heavy truck dealers do not fare as well, with an improvement of only 1.7% over the first quarter of 2015. However, in both cases the total return on assets is still in the vicinity of 22% which is excellent when compared to dealer return on assets in most other countries in the world.”

Sewells obtains its data by analysing the monthly financials of more than 85% of the retail dealers and is able to track their financial and operational performance. This information is then utilised by Sewells Group to assist the dealers to improve underperforming areas of their operation.

“Our long-running service of providing this financial analysis to dealer networks monthly allows them to find fixes for the negative trends and to build on the positives,” added Olsen.

In terms of the mix or gross profit as a percentage of sales one sees the situation fairly stable among car dealers; while heavy truck dealerships are faring far better, with an improvement of 20.7% in the indicator for all departments while the new truck sales mix indicator is up by 53.1%.

There are a number of downward trends in the pre-tax profit margins comparison for both car and truck dealers. These include finance and insurance (F&I), parts and service for cars and F&I, new truck sales, parts and service for truck dealers.

A negative trend is evident in terms of asset activity or turning the company assets, particularly in terms of used cars (down 14.2%) and used trucks (down 32%). This is generally related to rising stock levels as the markets remain relatively depressed.

“We continue to find that dealers in South Africa are able to manage their businesses well and profitably in changing economic environments, which is a tribute to the high quality of management and training in the major groups and companies,” concluded Olsen.

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