the phoenix
A Fine Balancing Act
In late 2013 the Rand started its
precipitous decline, going from 9,73 to
the Dollar on 22 October 2013 to 11,30
to the Dollar on 29 January 2014. A fall
of 16% in three months. But even this
decline doesn’t tell the full story, because
the Rand was at 8,89 to the Dollar in
April 2013. Thus the Rand, in a matter of
nine months, fell by 27%. Aha, said the
local manufacturers, this will sort out the
pesky importers. And from an automotive
parts perspective, it must have pulled
the rug from many of what we shall
generously call “grey” importers.
B
ut the Rand’s decline is a doubleedged sword because there are
very few manufacturers who
can claim to manufacture 50% of the
diverse car parc requirements in South
Africa, let alone 100%. If the truth be
told, the majority of local manufacturers
would consider 30% local manufacture
coverage as pretty good. And let us not
forget that even those who claim a higher
percentage of local manufacture do not
tell you that a significant percentage
of their bill of material will comprise
imported cost.
Thus, Rand weakness puts pressure on
margins for all and sundry. Of course,
those with significant export programmes
will smile a little broader, because this
allows them to subsidise the local market
to a certain extent.
However, here’s the rub. Local manufacturers do have another disadvantage when
competing with the fly-by-night type
operations. These importers of rubbish
have a much bigger leeway when looking
at increasing or even decreasing selling
prices, because historically they have
always enjoyed a much bigger gross
margin.
Furthermore a large portion of these
morally ambiguous set-ups do not worry
about the niceties of paying such things
as import duty and VAT. Add all of these
factors up, and the leeway becomes
significant, and it puts the good guys in a
corner.
Exercising their minds are the little matters
of return on investment and shareholder
activism, so they are forced to put up
prices when the Rand does its Greg
Louganis thing.
The big question is how to pass on
imported inflation of 20% and more,
without driving the already cash strapped
motorist into the hands of the purveyors
of poor quality product. It is a fine
balancing act, and it appears, after a little
bit of market research, that the preferred
approach from most of the quality brand
manufacturers is to put up prices in small
increments, even as regularly as every two
months.
It is tough out there, and with
the Rand clinging stubbornly
close to the 11 to the Dollar
mark, plus the terrifying
prospect of five more years of
Zuma at the helm, I don’t expect
the Rand to do much better in
the foreseeable future. There is
only one word for this situation.
And the word is eish. At least
this word cannot be imported
cheaply. Or maybe it can?
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| words in action
2
april 2014
www.abrbuzz.co.za