The Future of Auto Financing - With Robert Gwerengwe

Greg: Welcome to No Free Lunch, Africa's Freshest Business and Tech Podcast with me, your host, Greg Stewart. And our discussion today is all about vehicle and asset financing. And with me in the studio today, I'm very happy to have Robert Guerengre, the current CEO of West Bank and previously the CEO of Direct Access Robert holds an executive MBA and BCOM in finance and computer science from Rhodes University. Robert is a a well-experienced finance person, having been in the FMB stable for about 19 years now, and recently, well fairly recently anyway, taken over as CEO of West Bank.

Welcome to No Free Lunch, Robert. Rob: Thanks, Greg, and appreciate you having me your podcast. Looking forward to it. Greg: And it's it's quite a time as discussion because there's lots of things happening in the automotive space.

And just since you've taken over as CEO in West Bank, seems to be more stuff happening. I don't know if it's because you joined or things were just shifting in the industry. But West Bank had fairly decent financial results, interim financial results that were issued. So that was a positive.

And there's been some new initiatives such as your the partnership where that West Bank established with JMC Motors coming back into the country. But talk to me a bit about how you see the industry at the moment. It it seems to be very fluid. we've got old established brands that seem to be diminishing, new brands coming in, lots of shift, lots of price pressures.

w just give us an overview of how you see the motor industry at the moment. Rob: Yeah, thanks, Greg. So I joined at a very exciting time. A lot of change.

And I think the big difference is that the rate of change continues to accelerate. I think Greg: Right. Rob: in the past, changes would happen in the industry, but it feels like sort of changes that would take five years in the past are now taking six or seven months to come into effect. The big shift has been, I guess, the Chinese OEMs coming into South Africa and sort of growing their presence in South Africa.

If you look at it in 2016, I think Chinese OEMs accounted for 0.1 % of new vehicle sales in South Africa and now of new vehicle sales up to a third. So that's a massive jump and that jump has been most pronounced in the last 18 months and continues to climb. That's probably the biggest shift that we see.

The established brands are trying to fight back. But there's a lot, I think, in terms of an advantage that the Chinese OEMs have had because they've been planning and preparing for this for the last 20 years. So if you've had the privilege of visiting China, which I had earlier this year, you'll see that I mean, they're light years ahead in terms of what they do manufacturing wise, what they're putting into innovation in terms of automation, the types of cars that they're producing, how price conscious they are and therefore how cheaply they can manufacture certain cars with certain elements in them that you know, traditional OEMs would have as extras you needed to pay for those come standard and at a lower price.

So it's certainly great for the consumer, but it makes for a Greg: Yeah. Rob: very interesting market at the moment. Greg: So just in terms of that market shift, one of the things that obviously is a concern for some people at the moment is the longevity of some of these brands. We have seen some of these brands come into Cherry came into South Africa before left South Africa, is back again and is back in a big way.

JMC that West Bank partnered with similarly was in the country for a while, left the country, came back. You know, we've seen quite a few of these shifts. do you think that there's longevity? and secondly, in terms of risk appetite and risk management, obviously West Bank is financing vehicles.

How do you view the the vehicle value? maintaining its retaining value of vehicles in terms of resale and and so on. Those are big risks involved in financing. how do you see that?

Rob: So it certainly has helped for us to spend some time in China, understanding what's happening on the ground, speaking to the leadership teams of the OEMs around their plans, how much they're investing. And I can't really speak for sort of a decade ago and somewhere in and out. I can speak for now. The guys are really, really prepared.

They're focused on being in South Africa. They see us as a springboard for them into the broader African continent. You can see, for example, Cherry taking over the Rosalind plant from Nissan, just outside Pretoria. And they're here to stay.

I don't think you start manufacturing locally if your intention is to jump. And also, there's a marked shift in the quality of vehicle that you see today as opposed to what you saw 10, 15 years ago from the Chinese. They've learned a lot. They've also hired some of the best talent.

over the last decade from the established brands to help with that because I think they realized there were some gaps. So I'm not really worried around the longevity of those brands, particularly as they are selling massive volumes of units into the market. So for them, it makes sense to stay here and to continue to build. The second question you ask around retaining residual values into the future.

It's an interesting one because it's not just around residual values of the Chinese vehicles into the future. It's actually more about residual values of the other vehicles because as an example, consumers now have a choice of buying, call it a three-year-old BMW X3 or brand new Chinese SUV which has similar, if not more features, et cetera. And more and more are choosing the Chinese vehicle because they come with the 10 year warranties, cetera, for some of them. And for us, the question then is if we ever have to resell older model of an established OEM vehicle, in our models, we would have thought we could get X, but we might only get X minus 5%, minus 10%.

We don't know. So we've done a lot of work Greg: Right. Rob: around understanding where Chinese vehicles have been in market for a lot longer, like Brazil, and understanding what the impact has been over time on residual values of the Chinese cars as well as residual values of other vehicles that are impacted by the Chinese cars coming in. And we've built that into our modeling.

But it just means we'll be less wrong than we would have been without the data, but you can't get it 100 % accurate. So it is something we watch on an ongoing basis. We try and get the best minds to help us. I mean, we have the great minds internally, but we also we look for help just in case someone has better information than we do to make sure we make the right calls.

But it is something for us to definitely watch. Greg: I think part of the perspective I think in in the marketplace is also around are are the vehicles being tested locally for local conditions? And you probably be able to speak more to that than I can. I know that some of the the the vehicles that are established vehicles in the country have quite rigorous testing because conditions in South Africa are probab and in Africa are very different from in Europe and so on.

do you see that those vehicles have been well tested for local conditions? Rob: Yeah, so I mean, there is a process that you need to go through before your vehicle can be sold in South Africa, which includes a lot of testing and then that gets approval and from the approval you then can import. there is that. I think the other thing that we should be cognizant of is that a lot of these vehicles are Chinese manufactured, also manufactured in India.

And if you've been to India, I think those conditions in some parts are much worse than we have. You drive through the roads in the rural areas where you're not sure if there is a road, but these vehicles go through it. So I think the testing is sufficient. And we're now seeing in a few of these call of the year awards that Chinese vehicles, I mean, there's one.

I want to pump a brand, but one that one car of the year last year, the T2. And you have to go through rigorous testing in order to get there. So I'm comfortable that those are in place. And they've also been quite clever in some of their marketing.

think that particular Jettor, they allowed one of the car guys to test it to the extent that they rolled it down a mountain. Greg: Yes. Rob: because they were comfortable that it can withstand all of that. So I think that the vehicles are of high enough quality and the testing is rigorous enough.

Greg: there's also a matter of especially this this whole EV market really starting to expand rapidly. around that, the the questions around that. Now certainly quite a lot of people in South Africa have gone solar. And if you've gone solar at home, it it may well make sense, or even in your business and you're running a fleet of vehicles for your business.

and you've gone solar and you've invested in the solar, it makes sense for you to to look at EVs as a an alternative. But overall infrastructure for charging, EV charging is still quite in its infancy. Do you see that catching up and do you see a lot of financing perhaps opportunity on the infrastructure side on the charging? Rob: Yes, so I think the latest study shows that we have just under 10 % of the charging capacity that we need as a country.

And what Greg: Yes. Rob: that screams for me is opportunity. And as Westpac, we're keen to actually be pioneers and be on the forefront of increasing that capacity. I think the more we participate in the full value chain, the better.

an ultimate product we can provide to society and to the market. And part of that is around the electrification and making sure we can provide certainty to our customers. So it's one Greg: Yes. Rob: thing to provide the finance at a good rate.

It's another to say, we'll provide the finance, but also will give you a word that you will not be stranded. And I think it's a big part of the value proposition. that we need to bring. And it's something that we're focused on doing.

I think it will be a game changer for us and for customers if Westbank says, we move with you in your EV journey and you will not be stranded because we're there with you. So that's key. And then, if you look at the cost of electrification or switching to EVs, it is significantly cheaper. to run an EV than it is a normal ICE vehicle.

And also, I think hybrids are sort of getting more popular because it's sort of the halfway house. But the war in the Middle East has sort of pushed people that way because in petrol, as at its highest, it was problematic. At those prices, it's difficult to... Greg: Yeah.

Audience? Rob: I mean, if you had a big engine, petrol engine, you start as you rev that car, all you're thinking is one round, two round, three round. It's a lot of money and it becomes prohibitive. it actually led to an uptick in customers looking for hybrid and EVs, which is good.

And now we just need to make sure we don't waste the crisis and we push the agenda to electrify because I think ultimately it's better for all. We've got fleets that we're looking to do that as well in our fleets business, which will be amazing if we can or when we get that right. And we'll continue that journey. Again, having been to China, it's great to see what they've managed to do in not a long period of time.

And just as a little example, mean, before you buy a car in China, you have to buy a license plate. So if you want a license plate for a normal ice vehicle, combustion engine, they tell you there's a three year waiting period if you want that number plate. If Greg: Wow. Three years.

Rob: you want an EV, yeah, if you want an EV one, you can have one right now. So what do people do? They buy the EV. Yeah, so you...

Greg: there's no such thing as no such thing as subtle persuasion, is there? Rob: It's a very subtle, very subtle persuasion. I mean, you walk around the streets of Beijing, it's very quiet because there's a lot of electric vehicles, electric buses, no real pollution. know, the pictures we saw 10 years ago of like smog, all of that's gone.

So I think there's an opportunity for us there. Greg: Yeah, think you know, everyone wants a bit cleaner air, certainly in the cities that we sit in and so on. And you it's it's not just the vehicles that create the the pollution. There's obviously a lot of other things, but you know, we certainly could do with cleaner air.

the big thing though for moving to EVs is was a number of things. the charging thing was the one thing. The other thing that's changing is the distance that the vehicles can now achieve. with every consecutive model that comes out, it seems to me they're reaching more and more and more.

I was at a an event recently with also with one of the Chinese vehicles manufacturers and they said they're bringing out an ordinary sedan next year just a small sedan with the four hundred kilometer range. So that range is certainly extending. And I think that's also gonna be part of the solution to allaying fears perhaps with people ordinary running around the city on day to day isn't really an issue, but it's those longer trips that and I think overcoming that is also a hurdle that's gonna have to be breached.

Rob: Yeah, spot on, spot on, Greg. And I mean, you talk about technology shifting. We saw two models that get 800 kilometers of range is eight minutes of charging on a fast Greg: Wow. Rob: charger.

It's incredible. So imagine you have that here. You basically can go get a top up. as your windows are getting cleaned, because I think we should keep people employed.

And I think there's a reason for that in their services. They can provide, check your tire pressure, et cetera. I mean, basically, by the time they're done, you've got 800 kilometers of range. So I think that's a game changer and will lay a lot of fears.

And then also what's encouraging is that there a lot more EV variants coming in. at the plus minus 300,000 Rand mark for a brand new sedan. And that's really great value. Those you get 400Ks range.

that entry price point is just, mean, they're now people that it actually is cheaper to do your running around in that. And then if you want a weekend longer drive, then you use what used to be your daily car because just the cost is prohibitive normally. So that's all very encouraging in terms of what's happening in the market. Greg: Yeah.

And let's talk a bit about fleets and and and businesses, 'cause from a business perspective, it can definitely be a game changer. And you're starting to see EV commercial vehicles coming into the market, not so much here in South Africa, certainly elsewhere in the world. But I would imagine, your smaller vehicles, your buckies and and that sort of thing, that you're gonna see a lot more emerging into or or coming into the market along those lines, smaller trucks, smaller delivery vehicles.

there's a there's a scooter company in Africa called Spiro that has launched all of these little delivery bikes that are all electric bikes. Imagine all the checkers 6060 and so on were running around on on electric. do you think that's where the the market's heading? talk to us a bit about that.

Rob: Yeah, absolutely. So the market is heading there. We've had conversations with, the likes of UberBolt and others in that space around providing fleets and making them electric. And I mean, some of them are already piloting some electric vehicles there.

And I mean, they look fantastic. I mean, as a start, there are newer vehicles, more comfortable, better technology. Greg: Yes. Rob: So I think there's definitely something to say about that.

The delivery guys, there are a couple of businesses who manufacture and provide those in Stellenbosch. And I think the view is to have a lot electric vehicles that. The smaller delivery vans, I think there are already some, and we are in talks with a few others to electrify. And we're also keen actually Greg: Right.

Rob: on 30 tonnes, the big trucks, because I think there's a massive opportunity there given the amount of fuel that's consumed by those. So I'll say watch this space because think we've got solutions can certainly play a helping hand there. And for businesses, you're a plumber going from site to site, as an example, you need a bucket, I'll say... The types of hybrid vehicles that are available now, the Buc-E's that are available, incredible.

for Greg: Yeah. Well Rob: your daily go to your customers back home at night, you almost never need to utilize actual fuel. So that shift is also starting to come. A lot of it is about the customers believing in the brands and believing that the brand will be as reliable as the old school OEM brands that they've been using will not break down.

And if they do break down, they will get the service that they require. And I found that that confidence level keeps going up. And a Chinese vehicle winning car of the year is only going to help that because that's a great accolade to receive. Greg: Yeah, it's certainly an interesting shift.

I think one of the things that a lot of people and but I mentioned earlier as well, particularly for businesses already invested in solar electricity and so on, that that makes your your overall cost of running quite low. and you also mentioned earlier that there's quite a difference between the actual running cost of an electric vehicle. and an internal combustion engine vehicle and fewer parts to break down. There's not as much heat generated and all those sort of things.

Brakes need you know because of the braking power of the actual motors. somebody was telling me about a an electric vehicle that they had to replace the brakes not because they were used, it's because they were never used and they basically had rusted and they needed to be replaced. So the the and that was after like 10 years or whatever the case may be. But I think there's gonna be have to be a bit of a mind shift you know, within industries and also an understanding of what the total running costs of these vehicles are.

And I think that could be also a game changer for the industry. Rob: Yeah, so we talk a lot about total cost of ownership. So not just the cost of the vehicle upfront and what you pay monthly, but really the running costs, the fuel costs, insurance costs. So what are you in for on a total basis?

And I mean, we found EVs and NEVs have a significantly lower total cost of ownership and particularly EVs. Like you say, fewer components, less things to go wrong, less things to break. The service is basically like just checking that your tires are fine, checking that the software is up to date, which is checked online daily anyway, because Greg: Yeah. Rob: everything is connected.

So I think the more and more people realize this. And that's why a big part for us has been about education over the last couple of years. Really, really educating customers about what it is electrification means, what the total cost of ownership actually is. A lot of customers didn't really.

For a lot of customers, was all about, you know, I buy this car, it's 8,000 rand a month. And that's it. Without realizing that, you know, then you've got 3,000 rand a month for insurance because you're under 25 and it's a high performance vehicle. And then you've got the fuel and if your goes up by X, then you're Before you know it, you're on double that and it becomes unaffordable for you.

a lot of what we've done is education. I think the more we do, the more we'll see the move to electrification. And interestingly enough, the traditional OEMs, they're coming back to compete because they now know that the only way is to compete and compete head on with the Chinese guys. Greg: I mean for me personally, I've I've looked at it now and we've got, you know, solar power and I've looked at it and said, i if I have to just take my fuel cost and my insurance savings and my fuel savings and my maintenance savings, it's almost a no brainer to go with an entry level electric vehicle today.

and I do a fair amount of mileage. but I hardly ever go beyond, you know, let's say a hundred kilometers, so maybe two hundred kilometers in total in a day. So that distance wise, that makes no difference. And it's come to a point where, you know, talking to the wife and saying, I think we need to get an electric car because it it makes sense.

Rob: Yeah, and I think you're spot on. The numbers make sense. And Greg: Mm. Rob: those that have done it also enjoy the drive.

Like it's nice to also zip around in a smaller car, shops and back to work and back, pick up and back. And it just works. And the cost, I mean, what you save in petrol will pay for that car. So it actually does become a no-brainer.

Greg: and some of those electric vehicles are pretty sharp on the acceleration as well. They they're no slouches. So for those who like a little bit of room, it it kind of meets that standard as well, doesn't it? Rob: Yeah, exactly.

mean, you almost on some infinite talk, right? Like it's not like it's got to wait for anything yeah, it just goes. So you can have a fun drive in those cars while you save money and help save the planet as well. I think you're winning all around.

Greg: Okay, final question to you and Robert where's the future? What what is the next big thing that's gonna happen? And certainly from a you know financing point of view, are there big shifts happening in financing? You spoke about total cost of ownership.

are you packaging insurance together with finance? where's the market headed? Rob: So I think where the market is heading is to more mobility solutions than I guess your traditional vehicle asset finance. And what I mean by this is people are always moving.

And I mean, as West Bank, we say we move with you, but there are a lot of people we don't move with today because the solutions we offer aren't the right solutions for them. But they are mobile. They need transportation for X days a month, for one day a month, for a longer period, shorter period, they need a scooter as opposed to a car, they need an e-bike as opposed to a scooter. So I think the future is around just understanding better the mobility needs of our customers and businesses, Greg: Right.

Rob: particularly smaller businesses, and figuring out models that make sense for them. Because ours is to, I guess, enable small businesses to produce help deliver GDP growth ultimately and also to enable people to go to school, go to work, go and sell their goods, live better lives and live lives that they contribute to society and to the country in a more fuller way. Ultimately, we do want to make some profit, but we want to make a difference first. So the future for me is around mobility.

Electrification is great. way we can do it, but I think there are other ways we can and we can learn from the broader African continent where, you know, they don't offer products structured the same way we do. They don't Greg: Right. Rob: have the credit bureaus that we do because generally if there's no credit bureau, can't offer credit or a solution to you, but in the broader African continent, they do and they make it work.

So we need to learn and we also need to take some of the good stuff we can from here and move it onto the continent. But I'm excited about what the future holds and our ability to influence some of that positively. Greg: Well, on that note, Robert Gueringwe, it's great been great chatting to you and I hope we get to chat more about where the the automotive and financing industry is heading in future. But thank you for joining me on No Free Lunch.

Rob: Thanks Greg, enjoy this. Cheers.