12 Jan 18

Fleet Trends in South Africa

Markets for fleet management are on the rise in Africa, but struggling economies in many regions and a culture entrenched in vehicle ownership make it a slow climb.

In South Africa (ZA), citizens depend on vehicle ownership as public transport is poor but rather than employers offering company cars, the government supports employee allowances and tax breaks.

Strong economic recovery placed ZA in the BRICS group (leading emerging nations of Brazil, Russia, India, China and South Africa).

Manufacturing vehicles for export in South Africa

ZA’s cheap labour market and government incentives for foreign investment make it attractive to automotive OEMs and component makers. German and Japanese cars are made here and China’s BAIC will begin production from a new plant in 2018. Most vehicles are exported to the EU (UK in particular) and the USA (where they are currently exempt from import duties).

Sales of passenger cars and LCVs grew by 6.5% in Q3 2017 and this included light pick-up trucks (referred to as “bakkies”), popular with farmers and small businesses due to their utilitarian capabilities and the fact that they can cope with the high temperatures and poor road conditions.

Rental and leasing market growth

The rental and leasing market is gaining traction. According to the National Association of Automobile Manufacturers of South Africa (NAAMSA), it accounted for 16.3% of new car sales in 2016, although the country is noted for being secretive with figures. That said, NAAMSA estimates the leasing and rental market accounting for an estimated 26.1% of new car sales in Q4 2017.

The Southern African Vehicle Rental and Leasing Association whose members own and manage a combined fleet of around 600,000 cars, vans and trucks have seen a year-on-year increase in sales of 12%.

Irrespective of their position, employees see car ownership as a perk of employment and it is facilitated through allowances (preferential employee tax benefits). Private leasing is not popular as South Africans prefer to finance their vehicles using ‘balloon payment’ schemes guaranteed by the financier, dealer (or both).

Challenges facing vehicle leasing and rental market

The challenges facing the vehicle leasing and rental market in ZA include access to capital, cost of borrowing, economic and political instability and exchange rate fluctuations, interest rate changes and fuel price increases. All of these affect total cost of ownership. South Africa is one of the most expensive places to buy fuel so fuel management is important.

In South Africa, the operating lease market is limited to fewer than 100,000 vehicles due to the popularity of ownership and availability of car allowances. Leasing companies are working hard to attract customers by providing stand alone fleet management services, including maintenance, fuel, fines and accident management, vehicle procurement and remarketing.

Long-term rentals are increasing in popularity as citizens who would otherwise be considered from the sub-prime segment can, through looser legislation governing rentals, gain access to vehicles but at a higher short-term cost.

The power of telematics

Telematics has had (and continues to have) the biggest baring on the automotive lending sector in ZA as vehicle owners and operators increasingly look for new ways to track assets, monitor and cut costs. This also helps mitigate the risks associated with vehicle ownership.

Telematics, coupled with fleet management technologies, are enabling leasing and rental providers to develop innovative services for citizens, enabling them to access vehicles, mobility and transport solutions whenever they need to. Perhaps this will go part way towards changing the vehicle ownership mindset and future fleet trends in these countries.

Authored by: Alison Pittaway