How New Car Prices Have Surged

CMH CEO pins the surge in new car prices on the weakening rand.
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Published: Thursday, April 24th 2014
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JOHANNESBURG – Local vehicle manufacturers and importers have increased their prices by between 6% and 14% since the start of the year. Speaking at motor retail group Combined Motor Holdings (CMH) results presentation for the year through February, Jebb McIntosh (pictured), chief executive officer, said he expects manufacturers’ price increases to average between 8% and 11% during the year. Importers, who have limited protection against exchange rate fluctuations, have increased prices by up to 14% in one go and probably won’t increase prices again unless the rand deteriorates from current levels. Local manufacturers will probably increase prices in smaller increments but more frequently. McIntosh said automotive groups are making up for lost ground. For the past three years pricing has lagged about three percentage points behind inflation, which has supported the market. The days of low new vehicle price inflation is coming to an end and it is largely driven by the exchange rate, he said. Consumers will feel the pinch as price increases – for the most part – are expected to be passed on at a retail level. Stiff price hikes could put a hamper on new vehicle sales growth, but the used car market could benefit from the widening gap between new vehicle and used car prices. He said whilst sales growth in the overall new vehicle market is expected to be flat, dealer sales could be down around 5%. Prospects McIntosh said the economy is heading for a period of consolidation and low growth as disposable income lags inflation. Consumers are faced with petrol price hikes, interest rate increases and toll fees. He expects interest rates to rise off a low base by around two percentage points in the next 18 months. “So whilst it will have an effect I don’t think it will be that dramatic.” But continued strike action creates a lot of uncertainty, which could affect sentiment especially in the luxury end of the market. McIntosh said electricity supply disruptions are particularly difficult for the group’s workshops that have lost productive hours. Results CMH’s revenue grew 10% in the period under review to reach R10.8 billion. This is the first time the group exceeded the R10 billion revenue mark. Operating profit surged 10.5% to R320.2 million. McIntosh said he is “quite pleased” with the results considering it was a difficult year, especially the second half. A prolonged strike in the automotive and component manufacturing sectors disrupted supply and the first interest rate hike also came through towards the end of its financial year. CMH sold 19 945 new vehicles in its 2014 financial year, compared to 19 793 in the prior year. It sold 13 970 used vehicles in 2014, up 3.7% from 2013. Headline earnings decreased 1.3% to R169.3 million, after eliminating the cost of goodwill impaired in the previous year. Dividends declared during the year were up 27.9% to 78 cents. A dividend of 50 cents per share, payable in June was declared. CMH currently owns 67 vehicle dealerships countrywide representing franchises of various automotive companies as well as Navistar and UD Trucks heavy commercial vehicles. It also owns the specialist luxury used vehicle franchise, Investment Cars. CMH’s share price closed 0.4% higher at R12.55 on Wednesday. This article was first published on MoneyWeb: