Outspoken Nada chairman Ray Nethercott says private leasing will probably be introduced in South Africa in the next 12 months. Speaking at the CAR Conference at Auto Africa, he also broached contentious issues such as dealer viability, satisfaction surveys and franchise agreements.

Outspoken Nada chairman Ray Nethercott says private leasing will probably be introduced in South Africa in the next 12 months. Speaking at the CAR Conference at Auto Africa, he also broached contentious issues such as dealer viability, satisfaction surveys and franchise agreements.


Current market indicators reflect a much-improved performance in the motor retail industry, and dealers “have all played a role in showing the manufacturers that the market can grow provided prices remain stable”, Nethercott said at the NASREC exhibition centre on Wednesday.


”NADA approached Government on the subject of private leasing and a proposal had been accepted in principal and was now out for comment,” he added.


The boom in the new vehicle market had had a detrimental effect on used car sales in the last 18 months, and dealers were forced to readjust their pricing due to the non-inflation of new car costs. Nethercott predicted that, in future, used car prices could depreciate between 20 and 30 per cent per year should current inflation trends continue.


Dealers further contributed to vehicle affordability over the past year by suppressing parts price increases, and workshop labour rates were hiked between six and ten per cent, “clearly tying in with the increased salaries being paid in this department”, Nethercott added.


But a major contributor to the improved market was the emergence of the Black bourgeoisie and the buying power produced by this middle class. Over the past three years, 300 000 Black South Africans joined the ranks of middle class income earners, “and it shows that Black South Africans have shattered the glass ceiling created by apartheid.


“If vehicles continue to remain as affordable as they currently do, then a market of 500 000 is a distinct possibility. Many dealers have a Black customer element of 35 per cent or more,” Nethercott stated.


Customer satisfaction crucial to viability


“Over the last year there has been an improvement in the bottom line, but there’s still a long way to go because very few people would like to invest in operations that are giving a 2,2 per cent return on sales before tax, so we have to get smarter,” said Nethercott.


In the United States, Ford recently improved its customer satisfaction index (CSI) rating from 27th to 13th, but during the same period the company’s market share fell from 21,8 to 17,4 per cent. Last year, Harvard Business Review cast serious doubts on the validity of non-financial measures as a means to improving financial returns.


Recent research indicated that customers who rate a business at the “100 per cent satisfied level” spend no more than customers who rate the business at 85 per cent,” Nethercott advised.


‘Cut back on the surveys’


Can’t we cut back on the customer satisfaction surveys that we currently have in place in the market?


Nethercott answers. “We really only need ask our customers three questions: ‘Were you happy with the service?’; ‘Would you come back to us?’; ‘Would you recommend us to your colleagues?”


“After five questions consumers become bored, and the information gathered is less credible. Too much of our potential profit is based on CSI, and we need to find a more concise way of getting the same information. I fully support customer service and improvement thereon, but there is ‘a bridge too far’ in many instances,” he added.


‘More equitable dealer-manufacturer agreements’


It has been widely publicised that representatives of the motor retail sector are unhappy with the franchise agreements manufacturers were holding them to, but Nethercott said: “I see a breakthrough in this regard… A number of manufacturers are writing up new dealer agreements with cancellation clauses of between one and five years.


“The world trend is towards fairer dealer agreements, and it will become a fact of life here in South Africa, too,” he said, adding that the problem with setting up lavish dealerships as part of franchise agreements was that “should we not have a franchise for these dealerships in the future, then what do we do with them?”


However, Nethercott reiterated that current dealer/manufacturer relationships had improved enormously, and that “both sides are working towards a win-win relationship”.


Looking ahead, dealers were anticipating improved markets, more competition (but fewer dealers within individual manufacturers), and “reduced margins, but better returns due to more asset spinning”.