South Africa’s automotive sector has seen a steady downshift in sales with a year-on-year decline for the fourth consecutive year due to inflation, high levels of debt, a rising cost of living and unpredictable fuel hikes forcing consumers to tighten their purse strings. New vehicle sales were down by more than 14% in May this year, and while the outlook for used vehicles is slightly more positive, 90% of vehicle owners are opting to hang on to their current vehicles for longer. In fact, over 40% of vehicles on the country’s roads are older than 10 years.
“The decline in vehicle sales is concerning,” says Sheraaz Patel, Executive Head at Motorvaps*, a specialised dealership partner and provider of value-added products and services. “Not only is there a potential loss of income for dealerships, but there is also the risk of negative knock-on effects such as job losses and a reduced contribution to the country’s GDP.”
Accelerating sales through additional revenue streams
Sheraaz notes, however, that dealerships needn’t rely solely on vehicle sales to boost their bottom line. Of course, selling cars is a crucial aspect of long-term economic stability, but in times of financial flux, dealerships can double down on other revenue-generating products and services that customers are increasingly opting in for to keep their vehicles maintained.
Value-added products and services encompass offerings like service plans, which can shield vehicle owners from surprise expenses by ensuring preventative maintenance is done on a regular basis. There are also motor warranties that provide an additional layer of protection, covering repair costs if the vehicle suffers a breakdown, parts failure, or electrical malfunction. Products that extend coverage to unforeseen events, like tire damage or dents and scratches, are also beneficial because if the unexpected happens, vehicle owners are not left facing hefty repair fees that could leave them out of pocket.
With South Africans keeping their cars for longer, Sheraaz stresses that it’s more important than ever to keep them engaged for the long term. By packaging value-added products and services in a way that offers customers the best value for money, dealers can secure buy-in and entrench loyalty. Whether they drive an entry-level vehicle or a sports car, every vehicle owner should be exploring the cost-saving benefits of these products and services – and dealerships must be on hand to capitalise on this financial and consumer momentum to weather the storm.
But more than just peace of mind and cost efficiency for motorists, he highlights that value-added products offer a safety net for dealerships as well. Beyond protecting vehicle owners from unexpected repair bills, they also ensure that dealerships are not left on the hook should unforeseen mechanical or electrical failures occur.
Remaining resilient through economic instability
The only thing we can be certain of is that there are significant challenges plaguing the South African automotive market which will drive instability beyond 2024. Diversifying revenue streams as consumers battle persistent economic headwinds is the only way to navigate these market conditions.
According to the Motor Industry Staff Association (MISA), a number of dealerships announced their intent to restructure at the end of 2023 due to the cost of doing business in the shrinking economy. Fortunately, South Africa’s automotive sector has a history of resilience. Yes, the current situation is exceptionally challenging, but the industry has weathered storms in the past and emerged stronger. With profitability under pressure, leveraging value-added products and services to stay afloat is a dealership’s best bet for beating this latest financial blizzard.
*Motorvaps™ is a brand of Moving Capital (Pty) Ltd. Administered by MVIA (Pty) Ltd, an authorised financial service provider (FSP 45790). Intermediary Services provided by MVIA Services (Pty) Ltd, (FSP 46967) and authorised intermediaries. Insurance products are underwritten by Mutual & Federal Risk Financing Limited (FSP49551). Non-insurance products are not regulated by the Financial Sector Conduct Authority (FSCA).
About Motorvaps
Motorvaps is the leading provider of car warranties, service plans and other value-added products and services (VAPS), dedicated to enhancing the automotive experience for dealers, service providers and clients. A specialised dealership partner, the company provides services across the country and works with some of South Africa’s biggest names to set new standards in the dealership industry.
