INDUSTRY OBSERVATION

Recession impacts insurers:

THE CURRENT ECONOMIC recession is resulting in buyers of new trucks opting for brands they know and trust. I am informed that one of the reasons for this is because buyers cannot afford to make any errors in their choice of vehicles or in the delivery of critical after sales support. 

Here are a couple of indicators that we feel endorse this statement: 

1. There has been a withdrawal of some of those newer players supplying “foreign brands” to the South African truck market. 

2. These short term players, who are only in the business as long it is viable, are known to up the price of spare parts to compensate for either:

1. Low (or lower) vehicle sales.

2. Inadequate market share leads to their attempting to get the spares division to subsidise vehicle sales. 

3. Incompetent national pricing results in a “charge what you like outlook”. There is therefore no national spares pricing index resulting in a layer of “amateurism.” 

4. Once the market for a “foreign brand” collapses, there is a certain amount of opportunism as the spares for the exiting manufacturer are generally in short supply. Holders of these components are aware that extortionate prices can be demanded. The most obvious example is a current imported Chinese clone vehicle. The spares are sourced from “unknown” suppliers and the incremental prices of these products would be humorous if it weren’t for the fact they are so high they bear little justification in the market. 

The problem for insurers is that we become vulnerable in times of economic meltdown. Clients/fleet operators are well informed of industry rumours; in addition they are often the first to experience difficulty in obtaining spares, particularly those required for everyday routine maintenance. 

The pressure on insurers to write off vehicles which normally would be easily repairable is, therefore, significantly greater. In summary, the vehicle manufacturers that deservedly receive the trust label share the following attributes: 

• It takes time and consistent service delivery to become a trusted brand. One cannot compensate this by a short term marketing and advertising campaign. As an aside, the “over promise, under deliver, no accountability syndrome” is rapidly becoming the bane of South African trucking. 

• Over the longer term, spares pricing remains fair and not erratic. 

• Communication with customers and the wider road transport market is consistent in every facet from spares supply, to events and product launches. 

• Market share is not “bought” by unsustainable new vehicle sales programs offering “too good to be true” sales packages. 

If we assume the recession may turn around in the near future, consider the following: 

When you wish to make your next vehicle purchase, please do the insurers a favour and adopt the mindset of being in a recession. It will really help keep our long term claims costs downwards if we all stuck to trusted brands. 

From our perspective, it is no consolation to say “we told you so” in these times. We insurers are still vulnerable to the extra costs we incur in paying claims due to a weak vehicle supplier base. These are very real and unnecessary costs!