According to figures released by the National Automobile Dealer Association, Brand Pretorius, chief executive of McCarthy Motor Holdings, said that franchise vehicle dealers in South Africa were in a state of crisis.
Addressing the CAR Conference at the Johannesburg International Motor Show, Pretorius pointed out that the NADA statistics indicate 172 franchise dealers or sales points had closed between August 2007 and September this year, but 107 had also opened in the same period – largely represented by Chinese manufacturers.
Pretorius said that some dealer networks were restructured, but many more would have closed had it not been so hard to do so – especially because of the substantial property lease obligations on these premises.
All the premises were custom built. The leases ranged from 10 to 12 years and if they were closed and could not be sub-let, the accounting convention was that there would be an immediate knock to the company’s bottom line.
Pretorius referred to an example of a R35 million dealership that had opened two years ago, where problems were rife. It had products in stock worth between R500 000 to R750 000 a unit and had little hope of becoming economically viable. If this dealership had to close, from a property lease obligation viewpoint, the firm would suffer “a R58 million knock on the bottom line tomorrow because that was what accounting convention stipulated,” Pretorius said.
“If dealers had more flexibility and could have got out of these expensive facilities, many more dealerships would have closed. At this point in time, many franchise dealers are trading very close to or at breakeven,” Pretorius said.
He also stated that it was very likely the new vehicle market would remain depressed for at least another 12 to 18 months.
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