Combined Motor Holdings (CMH), which operates vehicle dealerships and owns First Car Rental, has reported a reasonable first half in 2023 followed by a weak second half, saying the subdued trend is expected to continue.
In the group’s financial highlights for the year to end-February and its latest annual integrated report published on Tuesday, CEO Jebb McIntosh said in a low growth economy with high interest rates, a weak currency, heavy discounting to reduce gross manufacturer overstocking and continued intensified periods of load-shedding, had negatively affected car sales and hire.
He said after the record highs experienced in the period after the pandemic, the Umhlanga-based group was concerned that monthly sales were below those of the previous year for the seven months running to end-February.
“High interest rates and more restrictive lending criteria by the motor finance banks have increased the pressure on customers,” he said, adding that the group was addressing this challenge by focusing its efforts “on the lower price range models which meet the pockets of the majority of the population”.
The motor industry recorded less than 1% unit sales growth in calendar 2023, still behind the level of 2019, the group reported, while the average daily hire rate fell 3%, partly due to increased competition from a few overstocked disrupters within the industry.
National new passenger and light commercial vehicle sales decreased 1.2% during the year. Within this total, passenger sales dropped 5.7%, while light commercial sales increased 10.8% as a trend towards more affordable vehicle categories persisted.
McIntosh said vehicle pricing remained a critical issue with the weak currency, with vehicles manufactured in Japan and Europe becoming increasingly unaffordable in SA.
The CEO said while the international trend had been to move manufacturing to either India or China, this had placed strain on local manufacturers because their production was too expensive for the majority of local buyers.
Already, more than half of the vehicles sold in SA are sourced from China and India.
For the year to end-February, CMH reported a 3% rise in revenue and a 1% increase in operating profit. Headline earnings per share were down 12% to 541.8c but cash resources rose 7% to R815m, the company said.
The board declared dividend of R2.20 a share.
CMH, which operates only in SA, employs about 2,555 people.
Maintaining his CMH rating at a hold, Smalltalkdaily analyst Anthony Clark said CMH’s results were better than forecast, driven by an improved balance sheet position and a slightly better than guided motor segment.
Clark said higher interest rates and a weakened consumer spending predisposition, especially towards higher value vehicles, led to the overall industry reporting a 5.7% drop in new passenger car sales, while car rental continued “to be the bacon that saves CMH”.
First Car Rental operates with a fleet of more than 7,500 vehicles throughout SA from a network of 51 branches and employs 527 people.
Looking ahead, the CMH executive directors said they believed that 2024 would see continued high interest rates and political uncertainty. This would see the car hire division facing continued pressure from margin squeeze caused by high interest rates and vehicle prices.
McIntosh said that while the consensus opinion was economic growth would be “modest”, the motor industry was expected to follow suit “with a slow first six months and then a modest improvement driven by an easing of the interest rate”.
Economists expect the US Federal Reserve to begin cutting interest rates later in the year and this to have a ripple effect on SA.
Pricing of both new and used vehicles was expected to stabilise as the current supply surplus was unwound, McIntosh said.
CMH said its budget had been structured on a modest increase in new vehicle sales, flat used vehicle sales and steady parts, service and financial services contributions.
CMH shares closed 2.82% lower at R27.20 on Tuesday, giving it a market cap of R2.035bn.
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