Often maligned and regularly bearing the brunt of consumer anger, the automotive dealer network that spans the country proudly displaying its brand affiliation is the lifeblood of the auto industry and subject to enormous pressure as it strains to maintain the rigorous standards set by the company it represents and doing this in the face of a shrinking economy.
The National Automobile Dealers' Association (NADA) recently released an overview of the current economic conditions affecting the automotive sector, highlighting the crucial role that motor dealers and retailers play in assisting customers during these challenging economic times.
"As we navigate through a period of significant economic uncertainty, the role of automotive dealers has never been more critical. These dedicated professionals are at the forefront, assisting customers in making informed financial decisions amid challenging market conditions. Despite facing numerous hurdles, from stagnant economic growth and high inflation to increased regulatory demands, dealers are demonstrating remarkable resilience and adaptability,” said Brandon Cohen, chairperson of the National Automobile Dealers’ Association (NADA), in his opening address at the 2024 F&I (Finance and Insurance) Industry Virtual Summit.
“Their unwavering commitment to maintaining the highest standards of compliance is essential in supporting both consumers and the automotive industry. Together, we are committed to steering our industry through these turbulent times and towards a more stable and prosperous future."
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South Africa's economic landscape remains difficult, with projections indicating growth of less than 1% in 2024 following a modest growth rate of 0,6% in 2023. Persistent electricity issues have significantly impacted the economy, reducing GDP by 1,5% in 2023. This trend is expected to continue, with further reductions of 0,6% in 2024 and 0,2% in 2025.
Household debt servicing costs are rising, consuming a larger percentage of income than in previous years, while household savings have dropped to their lowest levels since 2019. Inflation remains stubbornly high at 5,2%, which exceeds the South African Reserve Bank's (SARB) midpoint target of 4,5%. Consequently, interest rate cuts will only be feasible when inflation aligns consistently with this target. Additionally, the collapse of Transnet's port and rail services has further hindered economic performance.
The automotive sector is experiencing significant challenges, with the passenger car segment witnessing eight consecutive months of declining sales (although April did show modest gains). This downturn has reduced opportunities to offer finance and insurance products to clients.
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As clients' buying power diminishes, their ability to secure vehicle financing is also impacted. There is a noticeable increase in approved but unutilised transactions due to consumer uncertainty and the resultant desperation among auto dealers to make sales has made them targets for criminal activities.
In 2023 and 2024, there has been an increase in the use of fraudulent documents, impersonation of police, military and intelligence officials, a rise in off-sight and unsighted transactions and sophisticated cybercrimes such as spoofing, phishing, and email intercepts.
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Despite these challenges, the emergence of online finance applications and artificial intelligence (AI) is noteworthy.
Despite the economic challenges, there are positive signs on the horizon. Independent Power Producers (IPPs) have contributed approximately 3 GW to power production, with an additional 3 GW expected in the next five months.
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Bank economists predict a potential rate cut of 0,5% to 0,75% this year, depending on electoral outcomes and global factors. A further reduction of 0,75% to 1% is anticipated in 2025. Lower fuel costs in ZAR terms could provide consumer relief if global tensions, particularly in the Middle East, stabilise and if the northern hemisphere's summer reduces oil demand. Additionally, manufacturing and mining production are showing positive trends, with year-on-year increases of 4,1% and 9,9%, respectively.
The grey-listing of South Africa by the Financial Action Task Force (FATF) has led to significant amendments to the Financial Intelligence Centre (FIC) Act, impacting dealer compliance as High Value Goods Dealers. Despite these challenges, F&I professionals within franchise dealerships have demonstrated resilience by structuring and tailoring transactions to present optimal packages to customers. Currently, 80% of new and more than 50% of used cars are still financed, despite increased complexities in deal approvals.
"F&I professionals are at the forefront of ensuring compliance with evolving regulations, whether through digital onboarding solutions or manual processes. They play a vital role in understanding and meeting the needs of each client, ensuring fair treatment, and offering the best finance rates and Value-Added Products to meet the distinct needs of each individual. Their unique skills contribute immensely to the income and sustainability of dealerships,” says Cohen.
Colin Windell
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