Sustainable development

Bid Auto maintains its long-term strategy of building excellence in its workforce despite the current downturn in the economic cycle. By continuing to invest in developing human capital, the business is positioning itself for changing market conditions and a sustainable growth path in the future.

Performance

Trading profit of R743,0 million was slightly up on the previous year (2007: R724,5 million). Revenue of R18,5 billion (2007: R18,7 billion) was below expectation. Interest payment obligations have grown in the wake of the Viamax acquisition, but management’s view was confirmed that the transaction will add significant value as the expanded Fleet Services business emerged as the major profit contributor.

New vehicle sales fell 12% to 44 434 units.

Net jobs growth of 186 was achieved, taking the staff complement to 7 621. Job creation is a function of our expanded base and investment by the Group of R300 million in new and upgraded facilities, up from R280 million.

Some of our smaller dealerships made substantial losses while profit-makers such as the Insurance division failed to match last year’s earnings as promising product innovations were not able to fully counteract the effects of lower vehicle sales and the negative impact of the National Credit Act.

Major franchises – notably McCarthy Toyota, VW/Audi and Mercedes – made solid profit contributions despite lower retail activity as large vehicle populations support ongoing parts and service business.

Used-car volumes were up 9,9% to reach a record high of 42 182 units as pricing differentials moved in favour of this market. Burchmores also had a record year, a performance underpinned by the exceptionally high rate of vehicle repossessions by banks.

Service bay utilisation rose to 871 594 service and repair jobs, up 10% from last year’s high base of 792 479.

Yamaha Distributors delivered good returns in tough trading conditions, but at levels well below those attained last year. Our vehicle import and distribution business and our Value Centre/ValueServ networks incurred substantial losses.

Strategic drivers

The effect of higher interest rates and the NCA was evident in the first half of the year, with vehicle sales in December 2007 hitting their lowest level in five years. However, the full impact of the consumer credit squeeze and shrinking disposable incomes was not felt until January when trading volumes declined dramatically.

Government’s clampdown on credit extension and consumer spending proved highly effective in a surprisingly short time. In macro-economic terms, government’s high rate of fixed investment and an increase in the number of major construction projects were positive for the country. Unfortunately, the only businesses of ours directly exposed to this strategic initiative are a limited number of heavy truck outlets and McCarthy Heavy Equipment. This new operation – launched a year ago – is still building momentum, but performed exceptionally well, fully in line with management expectations.

It is difficult to overstate the strategic impact of NCA implementation. Credit-based consumer spending is being controlled very tightly. A fundamental shift has occurred in the management of credit and bank lending practices.

Recent concerns about credit card securitisation in the US will almost certainly confirm the view of South African authorities that rigorous control of credit has to be maintained. Our conclusion is that the NCA is not a once-off impact to be absorbed through efficient application and approval processes. It is the new reality for all consumer-facing business.