“New car buyers (or purchasers of pre-owned vehicles, for that matter) would
rather pay more for something flashier or more prestigious, and sacrifice another aspect of their lifestyle, than settle for something smaller and more pragmatic.”
Of course, one should not forget that exports are incentivised by government under a programme initially known as the Motor Industry Development Programme (MIDP), and due to be replaced by the Automotive Production and Development Programme (APDP) in early 2013.
The new APDP revolves around a system of
production incentives that provide benefits based on actual local production value and content as opposed to material cost. Its aim is to boost annual vehicle production to 1,2 million units by 2020. Under the APDP, auto makers producing more than 50 000 units annually will be rewarded with an effective reduction in component import duty, and will be able to earn duty credits based on increased production. In addition, an Automotive Investment Allowance will offer direct grants of up to 20 percent of the value of investments in new plants and machinery.
Against this backdrop, it is obvious that local
production (and by implication exports) are being incentivised as a way of stimulating new investments and creating more jobs. However, it is also implied that increased local content and local production could lead to cheaper cars.
What is the implication for imported vehicles? A significant portion of currently available models is fully imported, and therefore attracts import duties. Under the MIDP, exporters were able to offset these import duties against export credits.
This would allow a company like Volkswagen, for instance, to concentrate its manufacturing efforts on a mass-production model such as the Polo, which it would build both for local consumption and export, while using export credits to offset the import duties on smaller-volume models.
In doing so, Volkswagen would be able to fully import the Audi A4 range, for instance, and offset some of its export credits against the import duty to ensure competitive pricing compared to its direct rivals, BMW’s 3-Series and the Mercedes-Benz C-class, both of which are produced locally for export. Of course, automotive companies without a manufacturing base, such as Associated Motor Holdings, which imports and retails brands such as Hyundai, Kia, Tata and Daihatsu locally, did not enjoy this benefit. Even so, its contribution to overall vehicle sales during 2011 was in excess of 100 000 units. Under the APDP, a fixed import tariff structure
32 Management Today | April 2012
of 25 percent may at the very least create a more stable duty environment for importers, but it is clear that government would prefer to encourage local production, which may become increasingly attractive and feasible under the new scheme.
For retailers, the highly competitive nature of the industry translates into difficult trading conditions. In real terms, even the most affordable new cars remain expensive, and in an effort to attract cash-strapped consumers for the sake of volume, margins on these products are slim, to say the least.
While margins are more attractive on more expensive models, the volume potential is commensurately lower – especially considering the plethora of options within each segment, leaving the new car buyer spoilt for choice.
The ever increasing sophistication of even entry- level cars has also upped the ante as far as service requirements are concerned. Customer service and customer retention have become vital to the success of a dealership, but they demand substantial and ongoing investments in human resources, training, service infrastructure and facilities. However, it is a fact that customer satisfaction goes hand in hand with dealership profitability. For many dealers, the investment in setting up and maintaining a dealership to a brand’s required standards undermines profitability to such an extent that the necessary service standards cannot be achieved – hardly a way to attract or retain customers.
But dealers also have to contend with one of the most
discerning and emotion-driven car-buying publics in the world. For the SA motorist, a car is not merely an appliance, but an expression of lifestyle, an affirmation of success, and a symbol of independence.
New car buyers (or purchasers of pre-owned vehicles, for that matter) would rather pay more for something flashier or more prestigious, and sacrifice another aspect of their lifestyle, than settle for something smaller and more pragmatic.
One contributing factor is the tradition of employers to include a car allowance as part of the remuneration package, thereby creating a link between car and professional and personal status. People are more likely to be judged by the car they drive, than by the driveway they emerge from – which explains why some motorists spend more on their monthly car instalment than on their home loan repayment.
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