South African motorists are feeling the pain

The strong growth from Zeda’s car rental businesses was offset by declining profits from the sale of used cars, driven by big discounts being offered on new cars and declining consumer income. 

Avis-owner Zeda revealed this in its results for the year ended 30 September. The company’s financial performance came under pressure as car dealers slashed prices to drive up their sales. 

The company reported record-high revenue of R10.5 billion, up over 14% compared ot the prior year as its rental businesses went from strength to strength. 

However, its operating profit declined by 5.6%, and its profit margin slipped to 14% from 17% in the prior financial year. 

The long-term Leasing Business delivered double-digit revenue growth of 12.3%. This was in line with the strategic focus on growing the corporate sector, heavy commercial and Greater Africa, Zeda said. 

The adoption of iLease in its first year of operation was rather slow, but it continues to be a key growth element as it disrupts the status quo.  

From a short-term rental business perspective, we reported a 15.2% growth in revenue driven by double-digit growth in used car sales across the retail and wholesale channels. 

The rental business revenue increased by 4%, driven by growth in corporate, inbound, and local businesses. This was, however, negatively impacted by the replacement market, which is highly price-sensitive. 

The subscription business is down 5.6%, largely due to customers flagging system challenges when subscribing to the offering. 

Zeda said it has started seeing an increase in volume and revenue as it addressed these challenges towards the end of the financial year. 

Despite the strong top-line performance, the challenging used car market, driven by big discounts on new vehicles and declining consumer disposable income, continues to put pressure on used car sales. 

This environment constrained profitability, with the company’s EBITDA margin reducing to 32% (FY2023: 36.3%) and the operating profit margin declining to 14%.

Zeda said it sees FY2025 as a year of rebasing used car margins across the industry, signalling the end of the exceptional profits seen since the pandemic. 

To address this shift, Zeda remains agile in the size of outright acquisitions and the make-range model in these changing times. 

It expects the used car market to normalise after years of elevated profits, while economic growth is expected to remain subdued and put pressure on sales.

Other efficiency measures, such as the launch of a digital dealership in November 2024, are being implemented to enhance the market reach. 

Zeda said improved economic conditions and declining interest rates in South Africa should provide tailwinds for its business. It has also flagged an increase in public sector activities, which bodes well for its leasing book. 

It expects future growth to be driven by its subscription business, which came under pressure in the recent financial year, and its long-haul operations. 

The company is also eyeing further expansion into Africa, with it planning to launch in Zimbabwe soon. 

Zeda kept its dividend unchanged from the prior year at 50 cents per share.