Car rental group Zeda, which operates Avis and Budget businesses, may sell shares to an empowerment entity next year.
The company, which was spun out of Barloworld, listed on the JSE three years ago.
CEO Ramasela Ganda said they aim to finalise the deal by September next year.
She said the company has been working towards the deal, as its lack of empowerment equity affects its customers’ scorecards. “It is important if we want to remain competitive. We’re still really trying to make sure we close it.
“With the nature of our business, especially on the leasing side, we do a lot of work for the private sector as a supplier, and if we don’t meet that requirement, it has a multiple impact. We’re a supplier that is not meeting the requirements, we [affect] them [private companies] as well.”
Zeda has on average more than 20,000 vehicles in its fleet in Southern Africa. The company initially sold rental cars after 12 months, but that has been extended to 18 months.
Ganda said the shift in the new-car market has exerted downward pressure on the prices of used vehicles, particularly one-year-old models. To mitigate margin dilution, the company extends the lives of rental vehicles and sells them at an optimal age.
Though this “tactical response” has led to a 14.6% decrease in used car sales volumes and a 4.1% decline in revenue, it has boosted profit margins.
“In an environment where there is stiff competition … we delayed the disposal of cars, because when you dispose of a 12-month-old car, and someone comes with a brand-new car and the prices are competing, a customer is likely to go for a new car.
“We then delay the sale and continue generating [rental] money with them … then push them to car sales when they’re older,” she said.
Zeda’s short-term car rental business revenue declined by 3.4% to R7.4bn in the year ended September, mainly due to the fall in car sales volumes and the replacement rental business. Revenue from leasing activities surged 15.7% to R3.2bn. This was boosted by the inclusion of heavy commercial vehicles, which grew revenue by 30% compared with the prior year, accounting for 13% of leasing revenue.
Ganda said: “Heavy commercial vehicles. including trailers and big trucks, have done exceptionally well, in South Africa and outside. Those are indicators of the economy.”
In the short term, subscription volume was up 53%, with the company expecting it to contribute 25% of rental volumes.
“This is an untapped market. A customer gets flexibility to drive a vehicle without a long-term commitment of car financing. You can drive this vehicle for 12 months or less and bring it back every six months and get a different car. Depending on the cash flow, at a point in time, you can buy up and buy down in the subscription.”
Avis, which has decided to retain its operations in Ghana, will expand to 20 more countries in West and East Africa after an extension of its operating licences on the continent by Avis Budget Group.
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