The role of manufacturer incentives as control mechanisms within the automotive industry of South Africa

Abstract

The automotive industry, one of the main contributors to the South African economy, has become a complex and competitive sector. Market competition has resulted in an environment in which automotive manufacturers and retailers have become increasingly competitive to survive in a captive market space and have implemented various control mechanisms in the dealer network to ensure sales optimisation and market share retention. The automotive industry in South Africa is under continuous economic pressure and has to meet the challenge of changes in the automotive retail landscape. The dealer networks of the different brands represented in South Africa must evolve to deal with the management challenges they face in terms of market share retention of the particular brand they represent, as well as dealer profitability. A retail organisation’s success normally depends on a number of operational decisions that management must make on a daily basis. Moreover, these decisions affect the business’s profitability and strategic placement in the market. The study investigates the impact of automotive industry control mechanisms, notably the use of incentive models, in the context of the South African automotive industry. This investigation was done by means of a quantitative approach, analysing public data. The purpose was also to assist the retail environment with a strategic approach with special reference to creating an independent retail environment. The research has indicated that there is evidence that OEMs do attempt to control or affect profitability, market share and operational behaviour by using incentives, and that this does have a financial impact on the different brands reviewed. The control mechanism of additional sales incentives offered by the OEMs is intended to stimulate or drive the market. There is a clear indication from the trend analysis that this strategy may have a long-term negative impact on the retail environment. The respective brands should change their approach to the day-to-day operational management of their individual dealers.