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Taj Mahal Car Dealers May Go

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Taj Mahal Car Dealers May Go

Consumers will benefit from a renegotiation of franchise terms between car dealers and manufacturers.

That’s according to Jeff Osborne, CEO of the Retail Motor Industry Organisation (RMI), an umbrella body representing car dealerships.

The RMI has asked car manufacturers to revise their franchise terms and conditions, many of which relate to the level of investment dealers have to make in their showrooms.

“Nowhere else in the world do you see these Taj Mahal-style dealerships we have here in South Africa,” said Osborne.

Osborne said dealers face high fixed costs and long-term lease liabilities as a result of these franchise arrangements.

Considering that demand for new cars has come to a virtual halt, many dealers are struggling to keep their doors open. According to the RMI, about 250 new car dealerships have shut down in the past year. Dealers work on a narrow pricing margin, in some cases only 3%.

Osborne said one way in which consumers stand to benefit from a renegotiation of terms is a bigger choice. He said that many dealerships in smaller towns are closing, restricting potential buyers’ options.

“If margins are healthier, there is more room to play around with discounts,” said Osborne. “Consumers will also benefit from shopping in a more viable establishment – one in which the staff are motivated and happy with their lot.”

Under the current franchising system, car manufacturers supply new cars to dealerships.

The dealerships are independent from the car makers and are franchised to sell their brands. For example, McCarthy Limited, part of the JSE-listed Bidvest Group, owns outlets franchised to sell a wide variety of car brands such as Toyota, Volkswagen and BMW.

The franchise agreements operate under strict regulations, which the RMI said are decided on by the car makers. These regulations include investment level, expertise and staff training as well as the look and type of showroom.
Dealerships invested heavily while the car market was booming, but are now struggling to meet their commitments.

“These things are cyclical and we don’t want to find ourselves in the same position again,” said Osborne.

Svetlana Doneva

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