Vehicle sales: Hanged, drawn, quartered
Will a potential change of rules improve or diminish the value of an important economic indicator?
Publication of monthly vehicle sales figures, a leading real-time indicator of economic activity, could be on the way out, to be replaced by quarterly aggregates. But even as the motor industry considers reducing frequency of its market data, questions are being asked about the accuracy of current figures.
By one leading car dealer’s estimate, sales may be exaggerated by 5% in some months. In extreme circumstances, it could be 10%.
A former dealer says: "We are talking [about] distortion of a key economic indicator relied upon by key government institutions, including the Reserve Bank."
However, Mike Mabasa, the CEO of the National Association of Automobile Manufacturers of SA (Naamsa), strongly disputes the scale of the problem.
The main cause of discrepancy is a phenomenon known as prereporting, where dealers claim "ghost" sales. The practice is particularly prevalent at year-end or just before the conclusion of sales quarters, when dealers are under pressure to meet targets and earn incentives.
They register vehicles as sold, then either allocate them to the dealership demonstration (demo) fleet or park them in a yard until real customers can be found. Sometimes dealers act on their own behalf; at other times they are encouraged by manufacturers or importers with their own targets to meet.
According to Mark Dommisse, chair of the National Automobile Dealers’ Association, some dealers who have invested hundreds of millions of rands in their dealership facilities find it hard to resist supplier pressure.
John Jessup, former marketing head at BMW SA and Nissan SA and now an industry consultant, recalls being in a dealer’s office when the manufacturer phoned just before month-end and offered a R30,000 cash incentive for every vehicle registered as sold before the cut-off.
Prereporting happens all over the world. Last year, Fiat Chrysler agreed to pay a $4m penalty after being accused by the US Securities & Exchange Commission of paying dealers to overstate sales. More recently, BMW confirmed it was being investigated in the US over the veracity of its sales figures.
In Australia, KPMG has dedicated a whole chapter of its auto dealer guide to prereporting, and its impact on tax and accounting practices. The business consultancy says some dealers consider the practice merely to be a "timing mismatch", because vehicles will be sold eventually to real customers and inaccuracies will self-correct.
It’s not as simple as that. Several SA dealers and motor company executives tell the story of how, when the MD of an imported car brand left SA for another posting, his successor arrived to find hundreds of presold vehicles in the yard. The only way to sell them was to slash prices.
Then there are vehicle warranties. These are activated the moment the vehicle is registered as sold, so someone buying what they believe to be a new car may find that the warranty expires months earlier than expected.
Motor industry ombudsman Johan van Vreden has had to intervene in several cases where buyers were misled in this way. Every time, he says, motor companies agreed to extend warranties. However, when he criticised the lack of consumer transparency in prereporting, he says, "I was told the practice was none of my business".
Naamsa, which manages the vehicle sales figures, tries to minimise the potential for misinformation by demanding detailed buyer information, as well as the form of finance, then cross-checks this against vehicle registrations on the government’s eNatis traffic information service.
Describing the system as "robust", Mabasa insists that official figures accurately reflect sales. "Where there are differences, they are not material and we can generally correct them the following month."
The system has taken strain this year, however, as the local subsidiaries of BMW and Mercedes-Benz, in line with their parent companies globally, have switched to quarterly reporting. Naamsa has provided monthly sales estimates, but the perceived reliability of industry figures has inevitably been affected.
Other companies are adopting quarterly reporting in major markets — a practice Mabasa thinks could eventually become the norm in SA. Quarterly reporting smooths out short-term peaks and troughs and offers a more accurate trend guide, according to companies.
Critics, however, say loss of immediacy will actually be damaging.
Cyril Zhungu, head of automotive retail finance at Standard Bank, points to the Covid-19 crisis in SA, which could virtually halt vehicle sales this month if the national lockdown is extended. Under quarterly reporting, we would learn the true April picture only in July.
"The Naamsa figures reflect not just what has happened in the motor industry but also what will happen across the economy, particularly in those industries that rely on automotive for much of their business," he says. "Quarterly reporting would be less accurate and force us to change the way we project and analyse."
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