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Consumer Automotive Financial Services in South Africa

  • November 2014
  • -
  • Finaccord
  • -
  • 66 pages

Consumer Automotive Financial Services in South Africa investigates the market for automotive financial services linked to sales of new and used passenger cars to individual buyers in South Africa. In addition to analysing the market for finance and leasing services, the study also covers motor insurance, road assistance, extended warranties, creditor insurance, GAP insurance, prepaid service contracts, minor damage insurance and tyre insurance. Using survey results for average take-up rates for finance and leasing propositions at the point of sale, data for the size and growth of the automotive finance and leasing market for consumers in South Africa is provided in terms of gross advances and assets leased for 2010 to 2014 with splits between finance for new and used cars and between finance organised through dealerships at the point of sale and directly with banks or other lending institutions.

Table Of Contents

Consumer Automotive Financial Services in South Africa
0.0 EXECUTIVE SUMMARY 1
1.0 INTRODUCTION 3
What is this report about? 3
The focus of the report is on financial services related to the sale of passenger cars to individuals 3
Rationale 3
The provision of financial services is essential to support both car sales and profitability 3
This report offers a detailed and updated analysis of the subject in South Africa based on primary research 3
Methodology 4
Survey of dealers and manufacturers 4
Market data 5
Computation of market data is based on a complex set of assumptions and variables… 5
…in order to provide market segmentations in unrivalled detail 5
External sources 6
Definitions 6
Finance and leasing products 6
Insurance, warranty and assistance products 7
Operating models 8
Tied and non-tied providers 8
Abbreviations 8
Exchange rate 8
PartnerBASE and market data annexe 9
Finaccord 9
2.0 MARKET ANALYSIS 11
Introduction 11
Passenger vehicle data 11
Sales of new cars in South Africa peaked in 2013 before falling back in 2014 11
with slower but steadier growth apparent for used car sales 11
Three manufacturer groups make up more than a half of the new car market 13
Consumer automotive finance and leasing market 14
Market size and growth 14
Used cars make up the majority of the finance and leasing market by volume 14
and point-of-sale finance is quite evenly split between new and used cars by value 15
Growth has been most rapid in the small market for direct lending for new cars 15
Types of finance and leasing product 17
Four types of instalment sale contract are commonly used in South Africa 17
Consumer automotive insurance, warranty and assistance markets 18
Market sizes 18
In total, the automotive trade is likely to have sold contracts approaching ZAR 10 billion in 2014 18
Survey of automotive dealers and manufacturer brands - overview 21
Introduction 21
Provision of consumer automotive financial services 21
All nine products in scope are distributed by a majority of dealers… 21
… with the provision rate for motor insurance having increased significantly in recent years 21
Manufacturer brands could introduce new schemes for several products 21
Number and nature of dealer schemes 23
Dealers typically work with the four major banks for finance and leasing 23
and often utilise additional, independent providers for creditor insurance 23
but usually have just one partner for niche products 23
Types of creditor insurance policy sold by dealers 25
Creditor insurance sold with cars covers both permanent disability and temporary incapacity 25
Types of motor insurance policy sold by dealers 26
Most dealers concentrate on comprehensive motor insurance only 26
Sources of road assistance distributed by dealers 27
Road assistance is usually available with extended warranties, but can also be acquired with other products 27
Consumer uptake of automotive financial services through dealers 28
Point-of-sale take-up rates exceed 60% for finance and leasing and for road assistance 28
and used car customers record higher take-up rates than new car buyers for several products 28
Among buyers of new cars, take-up rates exceed 20% for all products 28
Survey of automotive dealers and manufacturer brands - partnerships 30
Introduction 30
Finance and leasing 31
The vast majority of non-tied partnerships are held by South Africa's main banks 31
while Wesbank is the dominant partner among manufacturer brands 33
On a combined analysis, FirstRand's subsidiaries give it a leading position in this market 35
Creditor insurance 36
Over 40% of dealers selling creditor insurance work with an independent provider for this 36
led by Regent Insurance, Traficc and Guardrisk 36
Hollard holds the most important relationships with manufacturer brands for creditor insurance 38
Motor insurance 40
More than 30 insurance providers compete to distribute their policies through dealerships… 40
and a number of major dealer chains operate their own insurance services 40
Viewed in weighted terms, manufacturer partnerships are dominated by three insurers… 42
… although many brands have not yet introduced a program in this arena 42
A combined analysis points to Hollard as a likely market leader for point-of-sale motor insurance 44
GAP insurance 45
Regent Insurance works with the highest number of dealers on a non-tied basis 45
… although a dozen non-tied providers are evident in total 45
including Hollard, which is the most prominent provider among manufacturer brands… 47
and that also features as an indirect provider via Wesbank 47
Extended warranties 49
Almost three quarters of dealers utilise one or more non-tied extended warranty providers 49
with four subsidiaries of Imperial active in this field 49
Motorite and Innovation Group are the leading partners for manufacturer brands' extended warranties 51
… followed by SA Warranties 51
Innovation Group, an administrator, occupies a leading overall position for extended warranties 53
Road assistance 54
Several dealers offer stand-alone road assistance from non-tied providers… 54
… such as Ctrack and Salesure… 54
… but the AA leads among manufacturer brands, followed by First Road Emergency 56
Prepaid service contracts 58
Motorite is the leading provider of non-tied prepaid service contracts 58
with Innovation Group the most visible partner for manufacturer brands 60
Minor damage insurance 62
Several specialist companies offer minor damage cover, including a subsidiary of MMC… 62
while Hollard's SMART subsidiary is a key provider for manufacturer brands 62
Tyre insurance 65
Bidvest Insurance is foremost among more than ten tyre insurers working with dealers 65
although SA Warranties overtakes it among manufacturer brands 65

LIST OF GRAPHICS / TABLES

0.0 EXECUTIVE SUMMARY 1
Key market data for consumer automotive financial services in South Africa, 2014 2
1.0 INTRODUCTION 3
2.0 MARKET ANALYSIS 11
Passenger car parc and new / used passenger car sales in South Africa, 2010 to 2014 12
Passenger car parc and new / used passenger car sales in South Africa, 2010 to 2014 (table) 12
New vehicle registrations in South Africa, segmented by manufacturer group, 2014 13
New and used passenger car finance market in South Africa, segmented by distribution channel: volumes,
2010 to 2014 14
New and used passenger car finance market in South Africa, segmented by distribution channel: values,
2010 to 2014 15
New and used passenger car finance market in South Africa, segmented by distribution channel: values
and volumes, 2010 to 2014 (table) 16
% split between the different types of finance and leasing contract organised at the point of sale in South
Africa, 2014 17
Total revenues from consumer automotive insurance, warranty, assistance and service contract markets
in South Africa, 2014 19
Total revenues from consumer automotive insurance, warranty assistance and service contracts in South
Africa, 2014 (table) 20
Comparison of the provision of each type of automotive financial service by dealers and manufacturer
brands in South Africa, 2014 22
Average number of tied and non-tied schemes organised by dealers for each type of automotive financial
service in South Africa, 2014 (table) 23
Average number of tied and non-tied schemes organised by dealers for each type of automotive financial
service in South Africa, 2014 24
% split between the different types of creditor insurance policy sold at the point of sale in South Africa,
2014 25
% split between the different types of motor insurance policy sold at the point of sale in South Africa, 2014
26
% availability of road assistance through factory warranties, annual services, extended warranties, motor
insurance, prepaid service contracts and as a stand-alone product in South Africa, 2014 27
% of new and used car purchasers acquiring each type of automotive financial service at the point of sale
in South Africa, 2014 29
Provision of finance and leasing by dealers in South Africa, 2014: provision rate, product sources and
provider share of non-tied partnerships 32
Provision of finance and leasing by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 34
Implied market shares of new business for finance and leasing at the point of sale in South Africa, 2014 35
Provision of creditor insurance by dealers in South Africa, 2014: provision rate, product sources and
provider share of non-tied partnerships 37
Provision of creditor insurance by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 39
Provision of motor insurance by dealers in South Africa, 2014: provision rate, product sources and
provider share of non-tied partnerships 41
Provision of motor insurance by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 43
Implied market shares of new business for manufacturer-branded and dealer-intermediated motor
insurance in South Africa, 2014 44
Provision of GAP insurance by dealers in South Africa, 2014: provision rate, product sources and provider
share of non-tied partnerships 46
Provision of GAP insurance by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 48
Provision of extended warranties by dealers in South Africa, 2014: provision rate, product sources and
provider share of non-tied partnerships 50
Provision of extended warranties by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 52
Implied market shares of new business for extended warranties at the point of sale in South Africa, 2014
53
Provision of road assistance by dealers in South Africa, 2014: provision rate, product sources and
provider share of non-tied partnerships 55
Provision of road assistance by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 57
Provision of prepaid service contracts by dealers in South Africa, 2014: provision rate, product sources
and provider share of non-tied partnerships 59
Provision of prepaid service contracts by manufacturer brands in South Africa, 2014: provision rate,
operating models and weighted provider share of partnerships 61
Provision of minor damage insurance by dealers in South Africa, 2014: provision rate, product sources
and provider share of non-tied partnerships 63
Provision of minor damage insurance by manufacturer brands in South Africa, 2014: provision rate,
operating models and weighted provider share of partnerships 64
Provision of tyre insurance by dealers in South Africa, 2014: provision rate, product sources and provider
share of non-tied partnerships 66
Provision of tyre insurance by manufacturer brands in South Africa, 2014: provision rate, operating
models and weighted provider share of partnerships 66

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