Bid Auto is South Africa ’s
second largest motor retail organisation, with
nationwide representation across more than 100
wholly owned dealerships. Its activities span
vehicle import and distribution, new and used
vehicle sales, parts and service, financial services
and fleet support, vehicle auctioneering, online
retailing and vehicle and truck rental. McCarthy
represents most vehicle marques and is the importer
and distributor of all Yamaha products in South
Africa.
►
Best ever
year for McCarthy for both vehicle
sales and financial performance
►
Total
revenue rises 18,8% to R16,2
billion
►
Trading
profit increases by 30,9% to
R621,3 million
►
Operating
margin reaches record high of
3,8%
►
Return
on funds employed significantly
above budget at 59,3%
►
Total
new and used units sold up 16,2%
to 84 393
►
Service
bay utilisation hits new peak,
with more than 700 000 vehicles
serviced
►
Strong
jobs growth – up from
5 289 to 5 795 – with
more to come
►
McCarthy
Insurance Services becomes top
profit-earner at Bid Auto
Brand
Pretorius Chief
executive
Introduction
Due to favourable macro-economic conditions as
well as enhanced vehicle affordability, the new-vehicle
market fired on all cylinders. McCarthy optimised
favourable trading conditions by recording its
best ever year. Total vehicle sales approached
85 000 units, an increase of nearly 13 000 units.
The retail network was extended and substantial
investments were made in the upgrade of facilities.
Revenue reached R16,2 billion, a rise of 18,8%,
while trading profit increased by 30,9% to R621,3
million. Margins were at a record high of 3,8%.
At 59,3%, the return on funds employed was well
ahead of budget.
McCarthy job creation was also at record levels.
The staff complement rose from 5 289 to 5 795.
It is anticipated that expansion plans could generate
up to 900 more jobs in the coming year.
Despite intense competition from finance packages
marketed by the vehicle manufacturers, our financial
service business has emerged as a strong contributor
to the bottom-line. McCarthy Insurance Services
is the biggest single profit-earner within McCarthy.
Bid
Auto
McCarthy’s flagship new Mercedes-Benz dealership
in Berea,
Pretoria was completed during the financial year
Macro-economic
factors
For almost the entire period,
strong GDP growth bolstered business confidence
while relatively low interest rates and inflation
encouraged a high level of consumer spending.
Salary and wage increases above the prevailing
CPI added to disposable income, while ready access
to credit increased the propensity to purchase.
The 0,5% rise in interest rates in early June
occurred too late in the period to have any material
effect on sales patterns for the year or on the
generally upbeat mood of the new-vehicle market.
Continual increases in the cost of fuel created
inflationary concerns (and were a particular worry
for the automotive industry), but had only a limited
impact on buoyant trading conditions.
Mitsubishi’s
Pretoria
operations were relocated to a stand-alone
dealership in Hatfield
Fiat
and Alfa
McCarthy’s first freestanding
Fiat
and Alfa dealership was opened
in Germiston in May 2006
Toyota’s
dealerships have earned a
reputation for committed service
and have won many prestigious
awards from Toyota SA over the
past 35 years
Industry-related
issues
Positive business
sentiment was reflected in high levels
of fleet-buying. In general, company
orders account for 60% of all new
car sales. Vehicle sales were also
supported by increased deliveries
to Budget Rent a Car.
The emergence of a new black middle
class kept new car sales at full throttle
throughout the year. Industry-wide,
it is estimated that upwardly progressive
black families now account for one
out of every three cars sold to private
consumers.
For three years, the market for new
vehicles has witnessed price deflation
in real terms. A key factor has been
our stable currency. However, a new
bout of rand weakness has set in.
Strong, sustained demand has encouraged
an increasing number of international
vehicle manufacturers to participate
in our market. Forty-eight marques
and more than 1 200 different models
are now on offer in South Africa ;
an incredibly wide range for what
is a small market in world terms.
This explosion in vehicle options
increases competition and puts constant
pressure on margins.
New-vehicle price deflation continues
to depress values in the used-vehicle
sector, creating a buyer’s market
in quality used stock.
Last year, just over 618 000 vehicles
of all types were sold in South Africa,
a 28% rise. This is the third consecutive
year in which sizeable increases have
been achieved in new-vehicle sales.
As the vehicle population grows, capacity
pressures mount. The need is becoming
acute across the automotive sector
for new investment in service facilities
and in the training of technicians
and other specialists.
Business risks
Business cycle sensitivity
is accentuated in the automotive market because
new vehicle sales are a key indicator of consumer
and business confidence. However, the risk affects
all retailers of durable goods.
Interest rate hikes and low economic growth affect
purchasing decisions and lengthen the vehicle
replacement cycle. However, interest rates were
at a 25-year low until recently, while sound financial
management by national policymakers has resulted
in steady economic growth.
Exchange-rate risk also applies and the issue
was again highlighted. Managing volatility will
always be a challenge. But, in general terms,
the rand has tended in recent years to move in
a much narrower band than previously.
Policy risk cannot be avoided in a strategic sector
such as transport. Policy changes, budgetary allocations
to road building, fringe-benefit taxation, environmental
legislation and competition issues can all affect
the industry.
However, transport infrastructure continues to
enjoy a high priority with national planners.
In the 2006 Budget, Treasury ear-marked R15,1
billion over three years to the provincial infrastructure
grant (part of which funds provincial road construction
and maintenance). Another R1,9 billion has been
committed for national roads. At the same time,
the automotive industry has shown itself well
able to cope with the introduction of cleaner
fuels and other environmental measures.
Risks associated with competitive activity and
capacity challenges have tended to grow in recent
years, but create a relative advantage for well-resourced
industry players (of which McCarthy is one).
Brand image is key for vehicle manufacturers.
They demand a retail showcase which reflects their
up-market brand values. This puts continual pressure
on dealers to increase their level of fixed investment.
Further investment is required in service facilities
and technical training as the vehicle population
grows. New models use sophisticated technology.
This means a high calibre of recruit has to be
attracted, trained and retained.
Advances in engine technology and warranty one-upmanship
by manufacturers add to vehicle servicing pressures.
Extended warranties and comprehensive maintenance
plans increase the service-bay workload. The widespread
adoption of loyalty programmes increases customer
retention (which is good), but also increases
the demand on service capacity (which can be a
challenge).
Technology can lessen as well as add to pressure.
More reliable and sophisticated engines enable
service intervals to be extended. The use of long-life
components, less aggressive low-sulphur, low-alcohol
fuels and smart solutions such as self-adjusting
cambelts and platinum-tipped spark plugs enable
trouble-free motoring and reduce service frequency.
Certain industry trends also contain implicit,
long-term risks to the business. Deflationary
pricing and intense competition by a growing number
of marques have resulted in constant margin erosion.
Year after year, dealers have been rescued by
higher volumes. In consequence, vehicle retailing
has become a high-volume, low-margin business.
If volumes stall, some retailers will stumble
– especially as fixed costs have been driven
to unrealistically high levels by brand image
demands from some of the manufacturers.
The best protection is a constant, rigorous business
model and judicious margin management by well-run
operations. In future, motor retailers will need
a reliable plan B should their A game (volume
business) take a knock.
Opportunistic attacks by “grey importers”
is a risk. Yamaha Distributors have to deal with
importers who bring in recently discontinued lines
from overseas markets and retail them at cut rates,
but provide no service support. These activities
are addressed by collaboration with consumer groups
and the authorities to encourage these entrepreneurs
to behave with a sense of responsibility to their
customers.
In this case, the Consumer Protection Act has
been used to good effect. Grey importers are now
required to repackage these goods so there can
be no implication that the products come directly
from Yamaha and enjoy factory support. In addition,
the customer has to be informed that the product
has not been sourced through an authorised importer.
Toyota
McCarthy Toyota’s new facility in Paarl
was the first Toyota
dealership in the Cape to conform to Toyota South
Africa’s 2010
dealer standards
Sensitivity analysis
Macro-economic factors have
a material impact on business growth. The key
concern is fluctuating business and consumer confidence
and its effect on vehicle sales volumes. A degree
of vulnerability is acknowledged in view of high
fixed costs. Should confidence (and sales) slide,
defensive action would include cost-cutting and
rigorous asset management. Fortunately, the McCarthy
model has become more robust thanks to the strength
of McCarthy Financial Services and Yamaha Distributors.
In a declining new vehicle market, dealers would
hope to receive more favourable business terms
and lucrative performance incentives.
Structures and
growth
The most material change to
the business structure involved the creation of
the McCarthy vehicle import and distribution division,
comprising Gaz Southern Africa and AutoChina SA.
Gaz Southern Africa – a partnership with
the South African Taxi Council (SANTACO) to distribute
Gaz commercial vehicles from Russia – was
formed in 2005. Its core offering is a competitively
priced taxi range. Marketing plans, however, were
affected by delays in government’s taxi
recapitalisation programme. We are well positioned
to benefit as the recapitalisation plan moves
forward.
AutoChina SA was created following an agreement
signed in 2005 for the importation and distribution
of vehicles manufactured in China. Distribution
and marketing of these exciting introductions
to our market will not begin until the first half
of calendar year 2007. The time-lag was unavoidable
in view of the need to convert the new range to
right-hand drive.
The import and distribution capability brings
a new dimension to McCarthy operations and reduces
our reliance on established franchises, creating
a better balance to the overall business.
The launch of Budget Van Rental was followed by
the roll-out of outlets in all major metropolitan
centres. The new business leverages off the Budget
Rent a Car brand. Some outlets are wholly owned;
some are franchises.
Renewed growth in fleet business is being aggressively
pursued following the re-launch of McCarthy Fleet
Services as a provider of the full spectrum of
fleet services, including management information,
lease products, maintenance packages, buy-back
options and fleet management expertise.
Black economic
empowerment
Bidvest’s BEE credentials
support our activities in the fleet sector, especially
among government departments and major corporate
groups which increasingly expect their procurement
programme partners to have a strong BEE profile.
A black commercial director was appointed
in November and is pursuing new business opportunities.
Our partnership with SANTACO not only covers the
Gaz initiative. They are also McCarthy’s
partners at the highly successful Toyota dealership
in Gezina, Pretoria.
McCarthy gave an industry lead in BEE by launching
joint-ventures with black entrepreneurs and providing
seed capital. Enterprise development remains a
point of focus. The franchise component of the
Budget Van Rental business provides new opportunities
to foster BEE. A minimum 26% BEE shareholding
is required of all prospective Budget Van Rental
franchisees.
New investments
A total of R200 million was
invested in new facilities and the upgrade of
existing facilities. The largest single franchise
investment involved a R45 million commitment to
our new Toyota/Lexus mega-dealership in Kingsmead,
Durban. The upgrading of dealerships and other
premises is undertaken in partnership with Bidvest
Properties; a collaboration which delivers ongoing
efficiencies.
Innovations
Innovative product structuring
was a feature of the new business success achieved
by McCarthy Financial Services.
McCarthy Call-a-Car created a South Africa “first”
by introducing vehicle search-and-buy via cellphone.
The concept was piloted in 2005 and went live
in early 2006. The innovation provides a direct
line to South Africa ’s estimated 26 million
cellphone users as they upgrade to 3G standards.
The mobile browse-to-buy facility requires GPRS
(General Packet Radio Service) enablement. Searches
can be conducted according to price, make, series
and region. McCarthy Call-a-Car now offers access
to its database of new and used vehicles across
call-centre, on-line and mobile platforms.
A revamped used-vehicle customer-satisfaction
survey was introduced in October 2005. The survey
poses fewer questions, but they are more pertinent
to the customer experience of McCarthy. The more
streamlined research tool is a key element in
the strategy to provide a consistently high standard
of customer service.
Time constraints have been identified as a key
issue with consumers. One demand is for rigorous
appointment scheduling of service business; driving
in on the hour, driving out one or two hours later.
Another is for vehicle servicing outside normal
business hours. A pilot operation was launched
to explore the practicalities of double-shift
operations, but at the moment labour legislation,
industry regulations and staff transport problems
inhibit this type of innovation.
Market response to the McCarthy Student Wheels
concept has been positive and three outlets are
in operation. Student Wheels offers reliable small
cars plus a McCarthy warranty and insurance package
for R55 000 or less. The major constraint to more
rapid growth is a shortage of quality stock in
this price range.
Yamaha Distributors has begun marketing the new
Yamaha robotics range. Expansion of the product
portfolio makes Yamaha Distributors the only Yamaha
partner worldwide to carry the brand’s entire
range, from motorcycles to leisure craft to home
entertainment to industrial and micro robots.
To entrench our reputation for recruiting the
brightest and the best, Bid Auto plans to launch
an on-line talent procurement engine, careers@mccarthy.
A national advertising campaign will help drive
potential candidates to our site.
Challenges
The need to attract and retain
excellent human capital has never been more important.
It is pleasing to report that employee satisfaction
reached the highest level over the last decade.
Leadership in training was underlined when McCarthy
Training Centre became the only employer-owned,
fully SAQA-accredited institution in the motor
industry able to offer National Certificates in
servicing and maintaining vehicles, in autotronics
and sales and support services across levels NQF
2 and NQF.
The McCarthy Training Centre provides training
to 1 100 technical trainees a year – an
estimated third of all such trainees in the automotive
industry. Seventy-seven percent of all technical
trainees are black.
McCarthy’s reputation for training excellence
is such that a number of manufacturers and retail
groups entrust technical training to our teams.
Increased vehicle sophistication demands increased
investment. McCarthy responded in 2006 with a
R1 million commitment to advanced electronic training
modules.
Today’s changing customer-profile was anticipated
in 1998 by the launch of sales-cadet training,
with strong emphasis on HDI candidates. Today,
80% of the intake is young, ambitious and black.
During the year, 63 sales and 383 technical learnerships
were managed while 725 were managed for other
companies. A further 66 competency-based management
training apprenticeships were facilitated. More
than 75% of all learners were black. The development
of young managers has become a key focus and,
to support this, a 24-month NQF 5 level emerging
business leader programme (EBLP) was launched
involving 45 delegates, 85% of whom are black.
In all, 5 372 course attendances were recorded
spanning 12 423 training days and 190 different
courses. Eighty-five black staff received adult
basic education and 14 bursaries were granted.
Four ex-bursars were employed in the year. These
previously employed ex-bursars and EBLP students
form the core of a new group of prospective managers.
Fifty-five staff participated in the mentorship
programme.
McCarthy Training and Development began conducting
courses for various other Bidvest divisions.
In the non-technical area, the syllabus continues
to grow. An emerging business leader’s programme
has been introduced. Management understudies and
“shadow managers” will be appointed
to provide an on-the-job insight into managerial
responsibilities.
Fourteen high-potential McCarthy employees attended
the Bidvest Academy. The intense and varied content
went far to develop their ability to contribute
at a higher level in the future. Their exposure
to the entrepreneurial ethic and management best
practice within The Bidvest Group and to business
school case studies, plus the intense monitoring
of and feedback regarding their use of positive
energy, combined to make their learning experiences
memorable and meaningful – with noticeable
changes back at their places of work.
Total training investment topped R10 million.
McCarthy has been proactive in the provision of
a safe and healthy working environment. HIV/Aids
poses a continuing challenge. The creation of
a corporate wellness programme has been well received.
Major points of focus are the personal, family,
social and health challenges associated with HIV/Aids.
In May 2006, Rally to Read, McCarthy’s social
investment flagship aimed at facilitating English
literacy in rural areas, reached a milestone when
the fiftieth rally took place. In total, nine
rallies set out, reaching 30 500 children and
1 079 educators at 133 schools, involving
96 sponsors and 1 311 participants using 438 vehicles.
About R5 million in cash and kind was raised.
The McCarthy community is proud that Rally to
Read won the 2005 Mail & Guardian’s
Investing in the Future Award in the category
Best Corporate Employee Involvement Programme.
The rally celebrates its tenth anniversary in
2007.
The Empowerdex “BBB” rating of McCarthy
awarded particularly high ratings for social investment
and skills development. McCarthy plans to seek
a new BEE rating in 2007.
The clarity of the regulatory
environment is a key factor in vehicle retailing
and the wider motor industry. Crucial policy and
legislative issues are currently under review
and will have a material effect on the industry.
South Africa ’s Motor Industry Development
Plan (MIDP) is being reviewed by the Department
of Trade & Industry. The MIDP system of import
and export “complementation” has been
criticised by some countries as a method of providing
subsidies to vehicle-makers and component manufacturers
which are contrary to World Trade Organisation
(WTO) guidelines.
Government obviously has to be sensitive to criticism
from trading partners and the WTO, but the developmental
and job creation needs of the country must be
carefully considered. Wholesale changes to the
MIDP at this stage would be highly disruptive.
South Africa currently exports about 200 000 vehicles
a year to 52 countries. Component manufacturers’
exports total approximately R22 billion a year.
Our vehicle and component exporters earn more
income a year for South Africa incorporated than
exports by the gold mining industry. It is vital
the export gains of recent years are not jeopardised.
A new National Credit Act is expected to be introduced
next year. This will affect the way in which vehicles
are sold and finance and insurance are provided.
The consumer has to be protected and responsible
marketing practices must be supported. However,
it is important that “red tape” be
kept to a minimum.
Budgetary policy is another critical area. The
vehicle population has grown substantially. Transport
infrastructure is under increasing pressure. It
is vital to maintain appropriate infrastructure
investment in the road and rail network.
Fringe benefits have been a frequent target of
the Finance Ministry. Yet company vehicles are
an essential business tool in a rapidly expanding
economy reliant on its job-creating entrepreneurs.
Some relaxation of fringe benefit tax as it applies
to company cars and allowance-receivers is desirable.
Interest-rate policy and foreign-exchange rates
provide another challenge. A measure of rand softness
and price inflation is positive for Bid Auto,
but volatility must be avoided. Business confidence
has to be maintained.
Significant price increases will obviously have
an adverse effect on new vehicle sales. However,
there are grounds for confidence that greater
profitability can be achieved on used vehicle
sales. In the last three years, a strong swing
from used to new vehicle purchasing was evident,
the result of price deflation on new units. The
value gap between new and used vehicles narrowed
substantially and a significant write-down in
used stock valuations ensued. A three-year process
of restoring the gap has now borne fruit, setting
the scene for an upswing in used vehicle sales
at acceptable margins.
Growth in the vehicle-owning population brings
the challenge of retaining profitable customer
relationships. McCarthy’s customer relationship
management (CRM) programme, Client for Life is
an industry leader. It was recently adopted by
Toyota South Africa for eventual roll-out to all
Toyota dealers in South Africa. Client for Life,
designed and driven by our Eliance business unit,
will be a vital tool as we serve our expanded
owner-base. Many owners have a new vehicle for
the first time in their lives. They have new expectations
and needs. These must be met or, ideally, exceeded.
The franchise portfolio will be significantly
expanded. We have already launched our first Renault
dealership. We will launch Ford, Mazda and Mini
dealerships while introducing SEAT, the new Spanish
brand, to the South African market.
Early indications are that 2007 may be more challenging
than the last two years in terms of volume growth.
However, McCarthy is well positioned to maintain
its strong position in the marketplace. Several
opportunities beckon, including the taxi recapitalisation
programme, growing acceptance of electronic vehicle-retailing
(where McCarthy is the market leader), a stronger
fleet services offering and the prospects for
growth with our new Chinese partners in the vehicle
import and distribution business.
McCarthy expects to make another strong contribution
to Group profitability in the year ahead and is
determined to deliver sustainable growth and quality
earnings.
MCCARTHY MOTOR
HOLDINGS
McCarthy VW/Audi/SEAT/Commercials
Excellent results were recorded,
well ahead of budget. Profit contributions from
the sale of used vehicles equalled those from
new vehicle sales. This was achieved by opening
additional stand-alone Mastercar outlets and the
launch of South Africa ’s first Audi pre-owned,
stand-alone site.
Consolidation of the Pretoria North and Gezina
dealerships proved successful and results at the
new Wonderboom dealership exceeded all expectations.
Brand profitability is set to improve following
the revision by Audi SA of the variable margin
structure. The model line-up is also to be expanded.
The business was awarded the SEAT franchise for
Durban and the Volkswagen truck range is set for
launch in early 2007, factors which will add further
impetus to growth.
Work on the Silver Lakes dealership was delayed
by rain, but the premises are nearing completion.
McCarthy GM: Opel/Isuzu/Chevrolet
New vehicle sales, particularly
of Isuzu and Corsa Utility, exceeded expectations.
Used vehicle sales were disappointing. However,
our recently completed used-car facility in Gezina,
Pretoria, will add significant capacity.
The Chevrolet brand was introduced to our Villieria
and Menlyn dealerships. Work will soon begin on
a new Menlyn facility, an opportunity to introduce
premium offerings such as Cadillac, Hummer and
Saab.
A new dealership to be developed at Silver Lakes,
Pretoria East, will create a showcase for the
planned debut of GM medium- and heavy-commercial
vehicles.
McCarthy Land
Rover/Volvo
Both marques achieved good
sales growth. Land Rover’s introduction
of Discovery 3 and the Range Rover Sport was well
received, with more new products to come. Volvo
faced a challenging year in the premium segment
of the market, but is well positioned to benefit
from new product launches.
The newly opened Land Rover sales boutique in
Tygervalley proved a success. Further rationalisation
of our Bellville facilities is imminent. Relocation
of the Land Rover dealership to N1 City, Cape
Town, is planned.
Among award successes was the “Sales Dealer
of the Year” accolade for Volvo Tygervalley
and recognition for the Durban operation as “The
Most Improved Land Rover Dealer”.
Renault
McCarthy’s first Renault operations
opened for trading in Pietermaritzburg
and Johannesburg
The separation
of the Nissan and Fiat operations
was completed in May with the opening
of Germiston’s first stand alone
Fiat/Alfa dealership. This development
concluded the upgrading programme
to ensure compliance with international
corporate image standards. Over R7,2
million was spent on image upgrades
and new buildings.
In the new financial year, our first
Renault operations opened for trading
in Pietermaritzburg and Johannesburg
South.
The commercial truck business performed
exceptionally well and received multiple
awards for sales, administration,
parts and service. The expansion of
truck operations in the Alberton/Alrode
area has begun. The new operation
is scheduled for completion by next
February.
McCarthy BMW/Mini
(Forsdicks)
Commendable results were recorded
despite the September sale of the Germiston dealership
(in line with BMW SA’s market-share rules).
Forsdicks were awarded the Mini franchise, a chance
to involve our first BEE joint-venture partner.
A new sales facility is being built at this Tygervalley
franchise. The acquisition of Tygerberg Coachworks
was concluded and will be integrated into the
Tygervalley business unit.
The upgrading of our Sandton dealership has been
completed.
McCarthy Peugeot
We opened a new dealership
in Rivonia to augment operations in Rosebank,
Tygervalley, Umhlanga, Pinetown, Pietermaritzburg
and the East Rand. A commercial-vehicle facility
is soon to be added to the Pinetown dealership.
It was a challenging year in the highly competitive
luxury car market. The imminent arrival of the
new Peugeot 207 is expected to drive new marketplace
gains.
Toyota
the introduction of new product
ranges helped boost new vehicle
sales
Mercedes-Benz
the launch of several outstanding
new models drove overall
performance
McCarthy
Toyota/Lexus
Profit and margins
showed pleasing improvements. The
introduction of new model ranges such
as the Yaris and Fortuner and the
launch of new derivatives in existing
ranges (RAV 4, Verso, Lexus RX350)
helped boost new vehicle sales by
21%.
Used vehicle sales were slower, but
still rose 8,5%. The introduction
of service plans on new models and
the continued success of after-sales
programmes helped lift profit contributions
from the parts and service operations.
Our first mega-dealership was opened
at Kingsmead, Durban, in March and
during July 2006 we opened new facilities
for our Paarl and Ballito dealerships.
We plan to move our Tableview dealership
to new premises in the second quarter
of 2007. In support of the new strategy
for establishing stand alone Lexus
facilities we plan to open Lexus Kingsmead
in August 2006 and Lexus Midrand in
April 2007.
The launch of several
outstanding new models drove overall
performance. They include the S Class,
the all-terrain M Class, the B Class
and, from Chrysler/Jeep, the highly
successful 300C.
As part of DaimlerChrysler’s
network infrastructure upgrade, we
moved to a new branch for Mercedes
passenger vehicles at Fountains, Pretoria.
Mitsubishi’s Pretoria operations
were relocated to a stand alone dealership
in Hatfield. Work began on a new Mitsubishi
branch in Midrand and renovations
at our Witbank dealership were completed.
At Witbank, sales of medium- and heavy-commercial
vehicles went well. Our parts- and
service-teams also put in a strong
performance.
McCarthy Pre-owned
Used car sales grew by 12%
year-on-year in a challenging market, though margins
declined slightly. The number of outlets was reduced
to six following the expiry of leases on some
McCarthy Pre-owned sites and the conversion of
other sites to manufacturer-branded used-car outlets.
An exciting new concept, scheduled for launch
in early 2007 will strengthen the McCarthy presence
in the used car market.
MCCARTHY FINANCIAL
SERVICES
Production showed significant
growth and by year-end the McCarthy Finance book
had grown to R4,8 billion across 50 000 accounts.
Profit fell, however, due to a lower rate yield
and a marginal increase in bad debt.
Competition is expected to intensify while higher
interest rates may affect consumer confidence.
A key challenge is the provision of skilled staff
to support the anticipated growth in the McCarthy
dealer network.
Cost control, operational efficiencies, customer
service and managing bad debt remain key focus
areas for management. New initiatives and dealer
network expansion create opportunities for further
growth.
Within the insurance business, continued focus
on value-added products and pursuit of new opportunities
led to a significant revenue increase and rise
in the number of active policies. McLife achieved
strong sales of single-premium client protection
policies. Further earnings growth is expected
following the launch of the Executive Plan policy.
Claims experience at both McLife and McSure was
well managed.
McCarthy Insurance, a joint venture with Hollard
Insurance, had a successful year. The performance
of its Shortfall Protection product was particularly
pleasing.
Results were enhanced by superior investment returns.
MCCARTHY FLEET
SERVICES
Results exceeded expectations
in the first year of trading as a self-supporting
business. The unit previously acted as a broker
for a financial institution. McCarthy Fleet Services
designed and implemented the relevant business
systems while recruiting a quality team to deliver
the full range of fleet solutions, including finance
and leasing.
Both sales volumes and revenue exceeded our target
while expenses were well controlled. A strong
platform has been established for further significant
growth.
McCarthy Corporate Fleet Marketing was set up
to provide specialist advice to national and multi-franchise
clients and has formed strong relationships with
numerous blue-chip companies. The creation of
fleet turnkey operations on the premises of some
of these companies enabled McCarthy to benefit
from demand for lifestyle solutions.
CLUB MCCARTHY
Loyalty programme membership
continued to grow. More than 125 000 customers
are now covered. New car sales and higher rates
of renewal – the result of an enhanced menu
of services – have driven growth.
MCCARTHY CALL-A-CAR
McCarthy Call-a-Car maintained
its market positioning as the South African leader
in electronic vehicle retailing and helped McCarthy
dealerships and franchised Call-a-Car dealerships
to sell 7 859 vehicles, a 21% increase over the
previous year.
Call-a-Car Platinum and Call-a-Car Mobile were
launched. The first innovation helps buyers search
for top-brand luxury vehicles priced above R200
000. Call-a-Car Mobile enables customers to browse
our database by cellphone.
Call-a-Car is well place to take full advantage
of anticipated improvements in the used car market
and will continue to innovate and enhance its
market offering.
ELIANCE
In view of increased focus
on new business growth outside McCarthy and Bidvest,
McCarthy On-Line changed its name to Eliance.
We secured contracts to provide CRM and other
applications to external customers such as Toyota
SA, DaimlerChrysler SA and Mahindra SA.
Eliance continues to develop motor retail innovations
and electronic media for McCarthy while running
the systems platform for McCarthy Call-a-Car.
In addition, Eliance has developed and implemented
the McCarthy CRM application, Client for Life
in all Bid Auto dealerships.
Budget
Rent a Car
is located throughout southern Africa
BURCHMORE’S
AUCTIONS
Burchmore’s
increased profit before tax by 45%
as initiatives to develop synergies
with McCarthy dealerships and Bidvest
began to bear fruit. These extra sources
of stock into our three strategically
placed auction centres in Cape Town,
Johannesburg and Durban were a major
factor in our improved performance.
BUDGET
RENT A CAR AND BUDGET VAN RENTAL
Increased economic
activity and a marginal increase in
market-share led to significant growth.
The van rental division was launched
and new computer operating systems
were introduced. A revitalisation
programme is under way following changes
to senior management. These initiatives
will contribute to further growth
in the year ahead.
A focused approach will be
taken to the industry’s major challenges
– a continuing “rate war” and
worrying levels of theft and road accidents.
YAMAHA DISTRIBUTORS
The product portfolio was further
diversified through the acquisition of the Yamaha
Intelligent Machinery (robotics) franchise. This
consolidates the Yamaha brand offerings under
McCarthy while adding industrial products to the
predominantly leisure range.
A strong focus on customer service across all
Yamaha business units has been initiated. The
process involves new staff appointments, staff
and dealer training programmes, system upgrades
and the introduction of Yamaha’s international
technical academy.
Despite a competitive environment and significant
growth in parallel imports, Yamaha Distributors’
contribution was slightly ahead of budget.
MCCARTHY VEHICLE
IMPORT AND DISTRIBUTION
This new business unit was
created to handle the Gaz business (via Gaz Southern
Africa) and the importation of vehicles from China
(through AutoChina SA).
Gaz, a joint-venture with SANTACO and Russian
Automobile Industries (SA) had a challenging first
year. Quality concerns were addressed and, despite
some uncertainties around the taxi recapitalisation
programme, Gaz Southern Africa sold 414 Gazelle
taxis. The business incurred a loss, but a modest
profit is anticipated in the coming year as the
recapitalisation programme is now scheduled for
implementation.
McCarthy secured the distribution rights to a
range of vehicles from China late in 2005. Infrastructure
is being established to support a proposed dealer
network and handle the import and distribution
of the vehicles. Trading is planned to start in
the 2007 financial year.
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