Cautious optimism for motoring sector rebound, survey shows

The effects of Covid-19 will continue to be felt by the local motor industry, but there are solutions to mitigate challenging conditions
The effects of Covid-19 will continue to be felt by the local motor industry, but there are solutions to mitigate challenging conditions
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The effects of Covid-19 will continue to be felt by the local motor industry, but there are solutions to mitigate challenging conditions.

This is the view of Dr Martyn Davies, automotive sector leader at advisory services firm Deloitte, commenting on the findings of a report released this week assessing the impact of the pandemic on the automotive value chain in SA.

“Companies are focusing on liquidity and people, in times of crisis, that is what counts,” he told TimesLIVE Motoring in an exclusive interview.

The research undertaking surveyed 127 respondents, including manufacturers, independent dealers, importers and suppliers, spanning representation under four industry organisations.

These are the National Automobile Dealers Association (Nada), National Association of Automobile Manufacturers of SA (Naamsa), National Association of Automotive Component and Allied Manufacturers (Naacam) and the African Association of Automotive Manufacturers (AAAM).

“The cheaper cost of capital is a good tailwind for the market,” he said, asserting that the current interest rate of 7.25% will stimulate spending. “Reduced household income will force people to look into pre-owned vehicles, seeking better prices.”

Davies suggested that a flow of supply in fleet vehicles from rental companies joining the second-hand market would mean a potential for deals with aggressive pricing.

“Significant excess stock is going to depress prices, whether consciously or intentionally.”

He believes that strong consumer demand in Asia would provide an opportunity for manufacturers to pivot. Citing recent industry-specific models deployed by German and French governments, Davies said a support package by our government would assist in promoting new vehicle sales.

Among the findings of the survey was the stronger embracement of digitisation of certain practices, including online sales. “[Covid-19] will accelerate it, this is new territory, yes, certain people do want to kick tyres and test drive cars – but many people are comfortable buying cars online and dealers will have to cater for that emerging trend.”

The survey also revealed that while B-BBEE transformation had been a focus before Covid-19, its importance has occupied a lesser priority as businesses look to pursue the generation of cash flow and achievement of break-even point.

“Automotive businesses are looking to raise this focus after 18 months and not before,” according to the report.

But Davies said that the Automotive Industry Transformation Fund (AITF) launched by Naamsa last year could serve to redirect efforts in the area. The R6bn fund is aimed at supporting black participation in the automotive industry supply chain.

“However, to qualify for that funding, companies need to be empowered. Companies are not thinking of growth, they are thinking of consolidation – but this could shift thinking away from survival to growth, that will push B-BBEE back into the sector.”

“Nobody has a crystal ball here, the survey was looking for an industry consensus, we expect a normalisation around 2021, albeit at a reduced level.”


*91% of businesses will increase their prices towards the end of 2020.

*53% of respondents are hopeful that their business activities will revert to “normal” in 2021.

*Respondents' immediate focus areas have been staff (22%), suppliers (13%) and customers (13%).

*The state of play of the automotive value chain was already under pressure before Covid-19, with 66% of the respondents reporting a decline in earnings.

*32% of respondents were already focusing on financial reserves and cost reductions.

*SA (68%) was the primary focus region before Covid-19, followed by non-African countries (7%), Ghana (7%) and Nigeria (4%).

*87% of respondents indicated that less than a quarter of their staff can work remotely.

*83% of respondents have three months or less of cash flow/liquidity to manage the crisis.

*5.5% had enough reserves to last them through the calendar year.

*59% anticipate product sales to drop by 31-50% in comparison to 2019.

*With businesses being placed in a difficult financial position, most respondents (64%), preferred an earnings cut to losing employees.

*70-94% of respondents either agree or strongly agree that digital technologies are significantly impacting the value chain.

*66-93% of respondents agree or strongly agree that they support digital transformation strategies.