McCarthy to ensure profitability by multifranchising

CEO Brand Pretorius said on Friday, 8 January 2010, the company would for the first time combine some dealers dealing in Citroën and Peugeot vehicles so that they operated from one showroom. This would help cut costs, improve sales and ensure profitability, he said.

Already, some of its Renault dealers shared showrooms with Nissan dealers in an arrangement that started about four months ago, Pretorius said. The multifranchising suggests dealerships are not out of the woods yet, grappling with weak new car sales, high fixed costs, sagging confidence and tight bank-lending rules.

Multifranchising is gaining traction in SA after what is happening overseas. Last week, the Financial Mail reported that Nissan had agreed that its alliance partner Renault might share some Nissan premises.

Pretorius said McCarthy was unlikely this year to reach the target of 25% return on capital employed set by its parent group. Last year, McCarthy managed to hit a 13% return on capital employed, a ratio that indicates the efficiency and profitability of a company's capital investments.

With new vehicle sales declining, franchise dealers including McCarthy face a squeeze on their profit margins and prospects of low profitability.

Pretorius said the volume was still low and profit margins thin. McCarthy, he said, focused on running its network of dealers leaner in terms of assets and costs. As for his projection for this year, Pretorius said he expected new vehicle sales to increase 7% annually to 422800 this year from 395230 last year.

Economic recovery, he said, would likely take time, and even though he saw green shoots, caution was needed. He said longer finance periods would continue to lengthen replacement cycles, slowing down new car sales.

Source: Business Day

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