Here's why South Africans are struggling to trade in their cars

Business Insider SA
ford ranger
The new Ford Ranger. CMH, which owns Ford dealerships, says the carmaker saw a 18% fall in its market share over the past year, mainly due to supply problems.(Source: Wheels24/QuickPic)
  • Vehicle owners are taking loans over longer terms, with bigger balloon payments left at the end, which force many to drive their cars for longer.
  • This leaves them with older, high-mileage vehicles - which dealerships are not that keen to accept as trade-ins. 
  • This also has a negative impact on dealerships, says Combined Motor Holdings in its latest results announcement. 
  • For more articles, go to Business Insider SA.

South African are being forced to keep their cars due to longer-term loans and balloon payments – and when they can eventually trade in their vehicles for a newer model, dealers aren’t that keen to accept trade-ins.

This sobering assessment of the predicament faced by vehicle owners comes from the latest set of results of vehicle dealer giant Combined Motor Holdings (CMH), released on Tuesday.

CMH owns more than 70 dealerships for - among others - Ford, Nissan, Renault, Toyota, Honda, Jaguar, Land Rover, and Volvo vehicles. Vehicle rental firm First Car Rental is also in its stable. 

See also: Volkswagen Financial Services won't refund car owners - for now

Longer periods over which new vehicles are financed, coupled with residual values, has led to a greater gap between trade-in values and finance settlement values, CMH CEO Jebb McIntosh said.

Looking at Wesbank’s loan calculator, buyers could theoretically get a car loan over six years (72 months) – with a potential balloon payment of up to 65% of the original amount. This means that, on a car bought for R200,000 (with a R10,000 deposit) you would still owe a residual of more than R123,000 after six years of paying instalments.

Owners are forced to drive their vehicles for longer than they typically did in the past, until the gap between the trade-in value of their cars and this residual starts closing. And then, when they finally can get upgraded to a new model, dealers may not want to buy their vehicles as trade-ins.

“When these vehicles are eventually traded-in, they have high mileage, and are often not in the desired condition to be resold with a warranty by a reputable retailer.”

Dealers are clearly not as keen to take on these trade-ins - which is bad news for South African car owners, who have come to rely on "trade-in" deals.

And this also has an impact on the dealerships, says McIntosh.

“The lack of trade-ins has forced dealers to source inventory in the open market where retained margins are lower.”

The Ford effect

While car sales have fallen in South Africa over the past year, CMH saw a small increase of 1.9% in sales volumes.

Supply disruptions at Ford – which represents the most cars sold at CMH dealerships – had a big impact. CMH says Ford's market share fell by almost a fifth in the past year.

Ford sold 4,961 vehicles in March this year – down 27% from almost 7,000 three years ago. Meanwhile, Toyota grew its sales by 35% in the same time, with 11,795 of its vehicles sold last month. (Volkswagen sales fell 8% to 6,754 over the same time.)

Ford was left damaged by the Kuga engine fire crisis in 2017, which resulted in a recall of thousands of cars.

CMH estimates that sales of luxury vehicles shrank by 10% over the past year in South Africa – but it saw volume growth at its Volvo, Land Rover, and Jaguar dealerships.

New car prices were up 2% to 3% in the past year, which helped CMH’s revenue grow 5.5% in the year to end-February. But headline earnings per share is down more than 8%, and McIntosh is not optimistic about the short-term future of the domestic market.

“Suffice to record that the widespread corruption, mismanagement of SOEs, uncertainty regarding land expropriation threats, and political leadership focused on short-term tactics ahead of the election, have combined to reduce business confidence to near all-time lows.”

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