South Africa’s automotive sector has seen a steady downshift in sales with a year-on-year decline for the fourth consecutive year due to inflation, high levels of debt, a rising cost of living and unpredictable fuel hikes forcing consumers to tighten their purse strings.

New vehicle sales were down by more than 14% in May this year, and while the outlook for used vehicles is slightly more positive, 90% of vehicle owners are opting to hang on to their current vehicles for longer. In fact, over 40% of vehicles on the country’s roads are older than 10 years.

The decline in vehicle sales is concerning. Not only is there a potential loss of income for dealerships, but there is also the risk of negative knock-on effects such as job losses and a reduced contribution to the country’s GDP.

Accelerating sales through additional revenue streams

Dealerships needn’t rely solely on vehicle sales to boost their bottom line. Of course, selling cars is a crucial aspect of long-term economic stability, but in times of financial flux, dealerships can double down on other revenue-generating products and services that customers are increasingly opting in for to keep their vehicles maintained.

Value-added products and services encompass offerings like service plans, which can shield vehicle owners from surprise expenses by ensuring preventative maintenance is done on a regular basis. There are also motor warranties that provide an additional layer of protection, covering repair costs if the vehicle suffers a breakdown, parts failure, or electrical malfunction.

Products that extend coverage to unforeseen events, like tire damage or dents and scratches, are also beneficial because if the unexpected happens, vehicle owners are not left facing hefty repair fees that could leave them out of pocket.

With South Africans keeping their cars for longer, it’s more important than ever to keep them engaged for the long term. By packaging value-added products and services in a way that offers customers the best value for money, dealers can secure buy-in and entrench loyalty. Whether they drive an entry-level vehicle or a sports car, every vehicle owner should be exploring the cost-saving benefits of these products and services – and dealerships must be on hand to capitalise on this financial and consumer momentum to weather the storm.

But more than just peace of mind and cost efficiency for motorists, value-added products offer a safety net for dealerships as well. Beyond protecting vehicle owners from unexpected repair bills, they also ensure that dealerships are not left on the hook should unforeseen mechanical or electrical failures occur.

Remaining resilient through economic instability

The only thing we can be certain of is that there are significant challenges plaguing the South African automotive market which will drive instability beyond 2024. Diversifying revenue streams as consumers battle persistent economic headwinds is the only way to navigate these market conditions.

According to the Motor Industry Staff Association (MISA), a number of dealerships announced their intent to restructure at the end of 2023 due to the cost of doing business in the shrinking economy.

Fortunately, South Africa’s automotive sector has a history of resilience. Yes, the current situation is exceptionally challenging, but the industry has weathered storms in the past and emerged stronger. With profitability under pressure, leveraging value-added products and services to stay afloat is a dealership’s best bet for beating this latest financial blizzard.

Sheraaz Patel | Executive Head | Motorvaps | mail me |

Related FAQs: Revenue stream diversification in the automotive industry

Q: What are some effective diversification strategies for automotive companies?

A: Automotive companies can leverage multiple revenue streams by diversifying their services beyond traditional car sales. This includes enhancing fixed operations, expanding parts sales and exploring new technologies such as electric vehicles. By tapping into new opportunities like online marketplaces and subscription services, companies can increase revenue and customer loyalty.

Q: How can dealerships diversify their revenue streams during economic downturns?

A: Dealerships can diversify their revenue streams by focusing on fixed operations, such as service and parts sales, rather than relying solely on car sales. By offering maintenance packages, extended warranties and used car sales, dealerships can create stable income streams that are less affected by market fluctuations.

Q: Why is revenue diversification important for auto dealers?

A: Revenue diversification is crucial for auto dealers to mitigate risks associated with market changes, such as downturns or shifts in consumer preferences. By diversifying their revenue streams, auto dealers can ensure a more stable financial performance and reduce reliance on a single business model.

Q: What role does analytics play in revenue diversification for the auto industry?

A: Analytics helps automotive businesses identify market trends and customer behaviour, allowing them to tailor their offerings and identify new revenue streams. By analysing data, companies can optimise their current business model and enhance their ability to cater to the evolving needs of their customer base.

Q: How can automotive suppliers benefit from revenue diversification?

A: Automotive suppliers can benefit from revenue diversification by exploring new product lines and services that cater to evolving market demands, such as electric vehicle components or aftermarket accessories. This can help them tap into new income streams and reduce dependency on traditional supply contracts.

Q: What are some new opportunities for revenue generation in the automotive industry?

A: New opportunities for revenue generation include expanding into electric vehicle markets, offering subscription services and enhancing online sales channels. By leveraging technology and understanding consumer needs, automotive businesses can create innovative income streams.

Q: How can auto dealers increase revenue through parts and accessories sales?

A: Auto dealers can increase revenue by promoting parts and accessories sales alongside vehicle purchases. Implementing targeted marketing strategies and bundling parts with maintenance services can enhance customer loyalty and encourage repeat business, thus diversifying their revenue channels.

Q: What impact did the COVID-19 pandemic have on revenue diversification in the auto industry?

A: The COVID-19 pandemic highlighted the need for revenue diversification in the auto industry as many companies faced significant declines in car sales. It pushed businesses to innovate by enhancing fixed operations, increasing online sales capabilities and exploring alternative income streams such as virtual consultations and remote services.

Q: How can automotive businesses use customer feedback to diversify their revenue streams?

A: Automotive businesses can use customer feedback to identify gaps in their offerings and explore new revenue streams that cater to customer needs. By engaging with their customer base and analysing preferences, companies can develop tailored services and products that enhance revenue diversification.