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South Africa’s vibrant dealer economy

Car dealerships contributed R14.6bn in VAT for the 2022 financial year.

7 hours ago

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Buying a vehicle from a dealership brings peace of mind.

It is easy to focus on the billion-rand investments in manufacturing plants made by car companies but motor dealers are also vital in boosting the local economy.

They are an important contributor to job creation and the delivery of the motor industry to consumers and businesses. Over 1 600 franchised dealers are members of the National Automobile Dealers’ Association (NADA), never mind the independents serving those older vehicles in South Africa’s estimated 12 million vehicle car park.

With dealer representation across the over 55 vehicle brands available in South Africa, their contribution to the economy is significant. As more Chinese brands enter the market, the number of retailers is set to increase, despite the consolidation of facilities as the customer journey evolves.

Purely the VAT across all these businesses provides a sizeable contribution to the fiscus. According to Naamsa, the Automotive Business Council, manufacturing vehicles in the country contributed R14.6b in VAT and duties in 2022. This amount will include the tax payable on new vehicle sales through retailers amongst the host of other items in the extensive value chain.

By extension, the local taxes, such as property rates on physical dealer infrastructure, contribute directly to the local economy surrounding each facility. These revenues help fund essential public services such as education, infrastructure maintenance, and public safety, benefiting the entire community. Not to mention the direct job creation in those surrounding communities.

New vehicle sales in 2023 recorded 532 098 registrations across passenger and light commercial vehicles, the majority of the volume, as well as medium, heavy, extra-heavy, and bus sales. Of those, 446 570 were retailed off showroom floors through the dealer channel. Considering an average deal size for financed new vehicles from the largest vehicle and asset financier, WesBank, of approximately R391 000, it would provide an indicative new vehicle market size of R174.6b in the dealer channel alone last year.

While far away from economic science, it provides some level of insight into the value of South Africa’s dealer network and their contribution to the fiscus. Of course, new vehicle sales are only one factor of the dealer business, with the pre-owned sales floor, workshop, parts and accessories, as well as finance and insurance all contributing towards the bottom line.

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All those profit centres within a dealership require resources to deliver, and so the employment value chain is vast. This not only provides spending power within communities in support of household budgets but also provides income tax revenue for the country and consequent impact for insurance providers and investment houses investing earnings for future savings.

Sub heading: It is estimated that the multiplier across the entire value chain is well over 1 000 000 people.

Extend that network into its supply chain and the imprint of the retail motor industry is monumental: the necessity to move parts around by logistics, financiers, fitment centres, product suppliers, fuel stations, service and repair centres, as well as crash centres, stationery requirements and catering, computers, tooling and equipment – never mind the infrastructure of the global manufacturer’s taste for world-class building facilities.

It is estimated that the multiplier across the entire value chain is between 500 000 and 1 000 000 people.

Whilst economic pressures and the evolving customer journey are providing for a level of consolidation in dealer facilities, South African showrooms are amongst the most lavish in the world. They meet stringent OEM brand standards and aren’t cheap to build. That investment into the property sector is equally significant, ranging anywhere from R8m up to R150m on ultra-luxurious new facilities, marking another sector benefiting from the dealer economy.

Those facilities all require highly trained individuals to operate them. Sales staff, accountants, management, and technicians have all qualified through a training institution, uplifting those individuals, and the community by extension, and creating opportunities for growth and skills development. The transfer of skills through operational training cannot be discounted towards providing a sustainable dealer infrastructure through which mobility comes alive for customers.

The footprint of economic activity surrounding a dealership is vast, stimulating the local economy and contributing towards the national fiscus. The overall contribution of the motor industry to GDP runs at just under 5%. Retail accounts for approximately 2.1% of GDP, making the dealer economy a significant contributor to national success.

The retail motor industry truly does play a significant role as a crucial economic engine for many communities and the country, providing employment, generating tax revenue, stimulating consumer and business spending, and fostering community development.

Consider that next time you drive a shiny new set of wheels off a showroom floor.