Johan Van Der Merwe, CEO of Autochek Financial Services, in this interview with BusinessDay’s Frank Eleanya, speaks on the number of acquisitions the company has made in recent times across the continent. He also shares how the company is addressing car affordability for consumers facing rising inflation, currency fluctuations, and unfriendly policies the automotive industry grapples with on the continent.
Autochek has been on an M&A spree in recent times. Tell us what the objective is for the company.
At the base of our strategy is to enable mobility for the customer and through that make the customer journey as easy and quick and affordable as possible – in essence being a one-stop solution in the car buying process. Our acquisitions are not without extensive due diligence and assessment of the synergies that could be unlocked and enhance the mobility value chain for both our customer and dealer base.
How much have you invested in these M&A exercises and what is the size of your portfolio now?
The decision we made regarding the markets that we are entering was an informed and well-researched one where we assessed the absolute potential for growth as well as an identified market need that is not fulfilled by existing finance institutions. Everything we have been doing up to now has been to position us for aggressive growth. We have been building our dealer base and dealer reach across the countries we operate in, and we have automated crucial processes through the acquisition of world-class finance systems. All this has been achieved on the back of equity funding. We still have a two-pronged approach in partnering with financial institutions that recognize our value proposition but at the same time grow our own finance book. We have operations in Nigeria, Kenya, Uganda, Ghana, Côte d’Ivoire, Morocco, Senegal, South Africa, and most recently Egypt. Our first round of debt funding that would put us on an increased trajectory in terms of business growth is in the process of finalization.
While you are connecting markets in Africa, I can’t help but point out that regional politics still weighs on your sector as well as the financial sector. Is this why you chose to buy companies rather than build from scratch?
Probably two aspects play a big role in this regard namely time-to-market and the fact that it is not always a great idea to reinvent the wheel. The acquisitions that we have done up to this stage have been of businesses that had a unique and established value proposition that could start contributing to our overall strategy from the get-go. The integration process into Autochek is obviously very important to unlock its full potential.
A car purchase is subject to the level of income, among other factors, and more Africans went into poverty in countries like Nigeria and South Africa last year. How are you tackling this challenge?
A lot of data analysis has gone into our scorecards in order to get the best predictive decision that determines if the customer would be able to afford the desired vehicle. It’s always prudent to err on the conservative side when assessing repayment to income. Affordability, however, is only one aspect of the approval process. We also look at the quality and value of the vehicle. All vehicles are financed after going through an in-depth inspection process and are financed with a maintenance plan, insurance and tracking device that protects the customer from unexpected surprises that will negatively affect his cash flow.
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How about the rising inflation and automotive policies that seem to push up the prices of vehicles in the market? How does that affect your pricing and your relationship with financial services?
Inflation, currency devaluations, and interest rate hikes are all bad news for financial institutions, dealerships as well as the customer. The African Market is underserved in terms of credit penetration and most financiers are quite risk-averse when it comes to the finance of vehicles as they don’t understand the underlying collateral value of specially imported vehicles as well as the dealer process that goes with Vehicle Finance. In most countries, bar South Africa and probably Morocco, there are very few OEMs that receive incentives to produce and/or assemble new vehicles which makes the countries’ transport systems very dependent on the importation of used vehicles and thus very susceptible to especially currency volatility.
Why are you focusing on North Africa, in view of your acquisitions in Morocco and Egypt?
Some opportunities presented themselves in these countries that were in line with our overall strategy. These markets also present massive growth potential. Egypt is currently the 2nd largest economy on the continent and a definite place that we at some stage were going to consider. The opportunity to acquire a stake in Autotager obviously brought that decision forward. The plan however is very much to stabilize the businesses in the specific countries that we operate in. Any acquisition is solely on potential and proper due diligence.
How do you run your operations in 9 countries? Separate or connected?
We are one of the truly pan-African companies on the continent. The countries are run separately but also very much connected. We have management structures in the country that understand the specific country’s nuances and markets but then centralized structures that coordinate overall strategy alignment, system, and very importantly communication. This aspect cannot be stressed enough – communication between the 9 countries is essential and next level to enable alignment and operational execution. One positive outcome of the Covid Pandemic has been the ability of some companies that have adapted to the remote way of running the business successfully – Autochek has built on this process.
You are solving for human mobility, but there is also a huge gap in the movement of goods and services on the continent. Is that in your future or are you already doing something there?
Right now, we are concentrating on getting the base and foundations right. It very much involves SMEs, ride-hailing and the like, but we have learned some early lessons that we need to understand larger and specialized vehicles and trucks a lot better to successfully enter this massive market. We definitely recognize this gap and in time will venture into this space as an extension of our value proposition but for now, we will perfect our offering in the retail vehicle market.
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