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© 2001 FleetWatch magazine and FleetWatch On-Line.
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The used truck arena in South Africa is experiencing circumstances it has never faced before. From only one year ago, the dynamics around the market have changed dramatically and for many dealers - both franchised and independent - it has become the dark side of the trucking business. For customers, there's also bad news writes
Patrick O'Leary who spoke to a number of players to get a handle on what's going on.
Used trucks have always found their niche in the market. For the new entrant, the used truck has traditionally been his route into an industry which he would not otherwise have been able to get into due to the high capital outlay associated with going the new truck route.
For the established players, used trucks have also played a vital role in, for example, servicing new contracts during the times when truck manufacturers were unable to supply new trucks due to lack of stock. Contracts do not wait. They are signed and work usually begins a few weeks after. To wait three to four months for a manufacturer to supply new vehicles would mean losing the contract. That's when used trucks come into their own.
Examining only these two dynamics, let's see how things have changed. In terms of the first, the prices of new trucks have remained static for the past few years, interest rates have dropped and new players have entered the market with extremely competitive pricing structures. What this all means is that new trucks have become more affordable which, of course, leans in favour of the new entrant taking the new as opposed to the used truck route to get into the industry. While this is great news for new truck suppliers, it's bad news for the used brigade.
In terms of used trucks filling the gap when new truck stocks are low, Mark Croxon, used truck sales manager of Sandown Commercial Vehicles says this is no longer the case. "Certainly this was so when the manufacturers called the numbers wrong and battled with stock. However, all of them now seem to have their numbers right and everything is now on rubber so the used truck is no longer needed as a stop-gap."
There are just two inputs that have served to knock the used truck sector and to emphasise the severity of this knock, let's listen to John Plagis, MD of independent used truck dealer, Isando Truck, who takes issue with the point of new truck prices remaining static.
"That's not true. They've actually dropped which has resulted in a substantial weakening of our market. The challenge for many now is to stay alive until the market picks up again. It's now a matter of survival," he says, adding that some independents who have other interests, have already dropped the used truck sides of their businesses to concentrate on developing those other interests.
Another 'hit' on the used truck business has been the fall off of sales into African countries due to South Africa products being unable to compete price-wise with European used trucks. Pieter Fourie. CEO of Tyco Trucks, who has International, DAF and Renault under his wing, nutshells the severity of this impact.
"Our exports of used trucks into African countries have all but dried up. We're selling about 10% of what we used to sell into countries like Zambia, Mozambique, Zimbabwe, Tanzania Malawi and others," says Fourie. The reason for this is simple. Success is the used truck business is all about pricing and South Africa just cannot compete against the Europeans on this front.
"If you look at the European market, the used truck values are a lot lower than ours. One of the reasons is due to the fast pace of technology changes in Europe which makes older trucks less valuable and less attractive due to negatives impacts like emission penalties. A lot of these trucks - which are in far better condition than our used models - are now coming into Africa and we can't compete on price. Europe is a huge competitor to us in Africa," says Fourie. |
Used
truck mile is what the N12 is called in the Boksburg area.
It’s here you’ll find a plethora of franchised and
independent dealers selling a range of good, poor and ‘doglooking’
trucks
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"our
exports of used trucks into African countries have all but
dried up."
Pieter
Fourie, Tyco |
Craig Uren, truck and fleet manager of General Motors (GM) under which Isuzu falls, has wiped Africa off his used truck management map, although Africa has never been as big a focus for a company like GM operating as it does in the 3 ton to 8 ton arena as it has for those operating in the 6x4 segment.
"For me to spend management time and effort on selling used trucks in Africa is useless as the market does not exist for us. Certainly our export GM dealers do service countries like Namibia, Botswana and Swaziland but outside of those, it is not worth our while," says Uren.
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"used
trucks is still a good place for us to be at the moment
but things could change."
Craig Uren, General Motors |
He also brings up the point of being uncompetitive on the price front. "If you go into places like Dar Es Salaam, you come up against cheap, creatively invoiced vehicles which are landed at next to nothing. Against these vehicles, we are between 300% to 500% higher on price than where we need to be in order to compete. It's a useless exercise," says Uren.
Interesting in talking to Uren is that some of the dynamics coming to bear in the 3 ton to 8 ton used truck segment are totally different to those at the top end of the scale. "For us, used trucks is still a good place to be at the moment but things could change."
According to Uren, one thing that has the potential to upset the apple cart is the competitive pricing embarked on by new players like Tata. "And now we hear of an operating company bringing in Chinese product at a cheap price." As in the heavy segment, the bottom line of this is that buyers can now get a new truck for the same price as what they would previously have paid for a good quality used truck. "It hasn't impacted on our dealers yet but we are looking at this as the impacts are potentially real."
He makes the point that when Tata first came into the market, many wondered where they were going to fit in and find customers. "To give credit where it is due, they are creating a market in what I refer to as the Third Economy but a question mark still remains on whether or not these vehicles will have a second life in the used market. Isuzus, Toyotas and Nissans all give a second - and even third life - so we will have to ride out the effect Tata has had on the first life sale and wait for developments on what happens thereafter," says Uren.
He admits that one can't compete on price against Tata - in terms of selling both new or used. "However, on Full Maintenance Lease contracts, we can safely put in a 30% to 40% residual value on an Isuzu as we know it will retain its value and give that second life," he says.
While the good news is about new vehicle affordability across the board, the bad news is that the value of that vehicle as a trade-in has gone down. "One of the big challenges facing us all is to buy right - and that means at the right price," says Fourie.
Enlarging on this, he says that historically suppliers and dealers operated in an inflationary environment where used trucks were bought in a business climate where new truck prices were high as were interest rates. "Up to 18 months ago, a lot of dealers were buying used trucks at historical trends. The tide then turned to bring in low inflation, low prices on new trucks and low interest rates with the result that dealers were left with high priced stock that was not moving due to buyers going for new instead of used."
What this has necessitated is that dealers have had to bring trade-in prices more into line with realistic market trends. It has also necessitated some dealers having to take a lot of pain in rectifying the situation - and this has included Tyco Trucks.
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New
trucks have become affordable,
bad news for the used brigade |
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"One year ago we were battling and we took the decision to liquidate some stock. So we took the pain by making some adjustments to bring everything more into line with reality. We're now alright but the problem lies in the unrealistic expectations of customers who are looking at high trade-in prices which are just not there any more."
Fourie's advice is for customers to adjust their expectations and take a relook at how they depreciate their assets in order to reflect the new realities. This sentiment is endorsed by Sandown's Croxon who says that quite a few customers have realised that their expectations of getting paid top dollar for trade-ins is no longer there. "As a result of this, the visionary customers have taken the decision to depreciate their assets a lot faster," he says.
He also adds a glum prediction that those dealers who have not done downward adjustments to their stock prices over the past six months, will have to take a knock to get rid of that stock. "I know one manufacturer recently held an auction to get rid of its stock but apparently it was not that successful. We will not go that route," says Croxon.
Mention 'expectations' and this brings us to a highly contentious issue. It relates to the Mead & McGrouther Commercial Vehicle Guide which details retail and trade-in values of all truck models.
Fourie, Croxon and Plagis all spoke out against the relevance - or more accurately irrelevance - of this Guide with Plagis being the most outspoken saying that the biggest problem in the market is the Mead and McGrouther Guide which he describes as being "totally irrelevant in today's trade-in market".
His point is endorsed by Tyco's Fourie who says that the Guide in not giving the correct values with the information lagging the realities of the market. "This is a serious situation as the banks and insurance companies put reliance on Mead & McGrouther - and the information is wrong," he says.
The common gripe seems to be that some of the retail prices do not come near to the reality on the ground differing on some models by up to R300 000. The retail price will be quoted in the guide at say R1,2-million when it is actually going for R900 000.
FleetWatch can bear out that the retail price in the trucking industry is a mere paper-price which bears no resemblance to reality. Prices vary depending on a number of factors and although space prohibits going into the issue in detail here, we raise the concerns about the Mead & McGrouther Guide as it needs urgent addressing and attention.
So where to with all this from here? "I don't know," says a flabbergasted Croxon. "We've never been in this scenario before. What I do know is that prices will drop even further and if you're sitting with stock, you're going to burn. It's all about pricing. If you price correctly, you'll sell."
Uren backs this statement with the rather humourous observation that something tells him he should be looking for signs and signals that will warn him when to start tightening the belt. "With seven consecutive good years behind us, we've never experienced such conditions and the problem is that I don't know what signs and signals to look for. That is enough to make me worried."
South Africa has gone through so much change and transformation over the past 10 years and the used truck sector is now experiencing its own transformation. We know, just as South Africa has come through it all for the better, so too will the used truck industry. It's just too important a sector not to make it through the night.
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