Black business is taking an increasingly firm grip on the automotive aftermarket, and will soon account for 50% of all franchise owners, franchising analyst Bendeta Gordon said.
This is in stark contrast to the vehicle and components manufacturing industry, where companies are struggling to increase black participation.
“Franchising is the route to meaningful economic participation for the majority of SA citizens,” Bendeta said.
Automotive aftermarket operators include maintenance and service companies, parts suppliers, panelbeaters, vehicle trackers, carwashes and companies offering repair and replacement of tyres, glass and batteries.
Vehicle manufacturers are at loggerheads with the government over how to increase black involvement. Individual companies are trying — in some cases, collaborating — to encourage development of black suppliers. But the pace of change is slow.
To hasten the process, government has proposed that multinational motor companies hand 10% of their South African subsidiaries to local BEE partners — an idea that has been rejected outright. Instead, companies have offered to create a R3.5bn pool to fund development of black-owned components suppliers and vehicle dealerships. Among suppliers, particularly, they comprise a tiny fraction of the total.
Gordon said black economic empowerment (BEE) operators already accounted for 30% of franchise owners in the automotive aftermarket, where investment costs are considerably less. While there were no firm figures to confirm, she said it was “likely” that these operators also took in about 30% of the sector’s R32bn turnover in 2017.
Gordon, author of the Franchise Factor research report, said insurance companies were helping to increase black numbers by insisting parts and service suppliers increased BEE participation in franchise networks. “A lot of these companies’ income derives from insurers so that’s a big driver,” she said.
There could be a further boost in future, she added, depending on the outcome of a Competition Commission investigation into new-vehicle warranties requiring customers to buy replacement parts from dealers franchised by vehicle manufacturers.
Bendeta said 30 new franchise networks were recorded joining the automotive aftermarket between 2012 and 2017, bringing the total to 79. The establishment of 803 new businesses created 5,573 jobs — the equivalent of staffing two vehicle assembly plants.
She said the increase was prompted by a tough economy that had changed new-vehicle purchasing patterns. As vehicles were kept for longer, the need for maintenance and other after-market services had grown. Recovery in new-vehicle sales would not reverse the trend. “The more vehicles, the more demand there will be.”
Gordon added: “This progress is not a flash in the pan. The bottom line is that franchising is a lower-risk opportunity directed at offering black entrepreneurs entry into the mainstream of economic activity by making small-and medium-sized franchised businesses available to them.”