Jebb McIntosh: CMH’s parts and services segments face potential threats in the medium to long term
Jebb McIntosh: CMH’s parts and services segments face potential threats in the medium to long term

Combined Motor Holdings (CMH), the JSE’s stalwart new and used vehicle retailer, has warned that the reliable profit drive from its parts and services departments could be under threat from proposed regulatory changes and increasing uptake of electric cars in the longer term.

CMH, which listed in 1987, has been one of the JSE’s most consistently profitable companies and boasts an enviable dividend track record over more than three decades.

In the year to end-February CMH’s core motor dealership business generated revenues of R10bn and pretax profits of R204m.

Though there is no segmental breakdown provided in CMH’s latest annual report, CEO Jebb McIntosh says the parts and service departments once again provided the essential stability and dependability that underpin the group’s successful dealerships.

But he warns that CMH’s parts and services segments face potential threats in the medium to long term.

He says the first challenge relates to the new code of conduct that has been proposed by the office of the competition commissioner.

He says this loosely termed "right to repair" code proposes allowing independent, nonfranchised dealers to service and maintain new vehicles within the warranty period. This could entail using nongenuine parts and accessories.

The National Association of Automobile Manufacturers of SA has submitted counterproposals to the competition commissioner.

McIntosh says these proposals align with the prevailing practice in Europe, and the outcome is still being awaited.

He says, though, that an estimated 25% of out-of-warranty repairs and servicing are performed by franchised dealers.

"CMH has recognised customers’ perception that nonfranchised outlets offer a cheaper alternative, and has introduced express service facilities where customers can be in and out within an hour spent in comfortable facilities with refreshments and Wi-Fi connectivity."

McIntosh says the second threat stems from the future generation of electric cars. "While more expensive to purchase, the cars have fewer moving parts and longer service intervals."

He believes it will be at least a decade, possibly longer, before a significant number of electric vehicles are sold locally.

"The only countries where electric cars have shown any traction — and even then at very low levels — are those where the ticket price has been heavily reduced by government subsidies."