The perfect storm has hit South Africa’s car market

JSE-listed vehicle retailer CMH says that a confluence of international of local and global factors has made it increasingly difficult to find good secondhand vehicles in South Africa.

In the group’s interim results presentation published on Tuesday (19 October), CMH noted that overseas Covid-19- related factory closures have caused disruptions in the component supply chains, principally from China and India.

The shortage of new vehicle stock has led to fewer sales and, consequently, fewer used vehicle trade-ins.

“Additionally, it has hindered the ability of car hire operators to rotate ageing fleet units. These factors have combined to produce a dearth of suitable, well-priced used vehicles. The result has been that used car prices have risen faster than those of new cars as the demand for high-quality stock has surged.”

However, CMH said that the consequent new vehicle stock shortages have created the opportunity to improve gross margins and increase accessory sales.

“The parts and service departments have performed well compared with the depressed prior period. However, after the surge in demand which followed last year’s lockdown, revenue levels have flattened in line with both constrained economic activity and lower distances travelled, as many employees have opted, and been encouraged, to work from home.”

On a positive note, CMH said it expects these shortages to begin subsiding in the coming months.

“The shortage of new vehicle stock is expected to lessen towards the end of 2021 and the start of the new year. However, the current temporary excess of demand over supply has, for some, created the perception that economic recovery has made the excess.

“The reality is that national sales levels are substantially behind those of the past decade, and the return of abundant supply will expose the dearth of customers who can afford a vehicle purchase. Be careful of what you wish for.”

CMH added that it is still wary of the threat posed by the Covid-19 pandemic, despite the end of the third wave of infections, with the group advocating for the uptake of vaccines.

“It is believed that the country’s economic recovery will be driven by the population’s continued vigilance and, most importantly, the uptake of the available vaccine. The group has embarked on an extensive drive to ensure that all staff are vaccinated.”

“At time of reporting, approximately 82% have been treated. Sadly, the group has lost eight valued staff members and is determined to limit the spread, for the benefit of both employees and customers.”

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The perfect storm has hit South Africa’s car market