/ 23 June 2017

Taxi owners bled dry by credit costs

Running on empty: Taxi owners are battling high interest rates.
Running on empty: Taxi owners are battling high interest rates.

Taxi bosses brought Gauteng highways to a standstill last week. The middle classes lamented the inconvenience, but the real target of the disruption was SA Taxi Finance and its eye-popping interest rates.

SA Taxi Finance is a major financier of the taxi industry and offers loans to buy taxis in a category known as developmental credit, which under the National Credit Act can charge a maximum prescribed interest rate of an effective 34% a year because these are “high-risk” loans.

In the case of SA Taxi Finance, the pricing is risk-based and ranges from 18% to 28.5%, with an average interest rate of 24.9%. The loan is also secured by the vehicle, which is repossessed in the case of nonpayment.

Ralph Jones, Gauteng secretary general at the South African National Taxi Council (Santaco), said a quick calculation of the price of a vehicle, R457 000, at a 28.5% interest rate resulted in the taxi owner paying R1.1‑million over a 72-month repayment period.

“You cannot pay R1.1‑million for a car; it’s just not affordable. [It means] you pay something like R15 000 a month.” If a vehicle operated 20 days a month and makes R500 a day, after deducting the cost of petrol, it would make about R10 000 and would be short of the repayment, said Jones. “A lot of our members are being blacklisted because of affordability. The number of repossessions is high.”

SA Taxi Finance said it fills a critical funding gap, providing credit to entrepreneurs who are typically considered high-risk and would otherwise be excluded from the formal economy, given their credit profiles.

“It is estimated that 90% of SA Taxi’s client base is considered unlikely to be able to gain access to traditional finance through a local bank,” SA Taxi Finance said. “Banks are hesitant to fund and support this segment of the market, given its perceived risk, although they may bank these clients.”

Tax owner Tefo Malape didn’t think he was particularly high-risk. He had been in the business of operating taxis for 25 years. When he decided to upgrade his two 15-seaters to 22-seaters, the first vehicle was financed through Wesbank at a rate of 15%. Malape said he paid his instalments in full and on time but when he went to purchase the second 22-seater, the car dealer told him finance had been refused by all the banks but that SA Taxi Finance was willing to extend a loan to him.

“They don’t tell you about the interest rate right then,” said Malape, who found he would pay 24% when he went to sign the contact. He accepted the rate out of desperation, he said. In the current economic climate, each of Malape’s vehicles can make about R20 000 in a good month, only just covering the repayments of R19 000 on each vehicle.

Jones said Santaco was baffled by what it saw as unfairly high rates. “Where is the Competition Commission in all of this?” he said.

SA Taxi Finance, however, said interest rates are also driven by its cost of borrowing, which is higher than for the local banks, given the smaller scale, the developmental credit business model and the niche segment of the market that it finances.

“SA Taxi [Finance] raises this funding from both the local and international capital markets only, in contrast to the banks who benefit from a cheaper retail deposit base,” the company said.

Jones said financiers needed to change their way of thinking. “The banks inherited all of this from the previous government, where operating taxis is not seen to be a business. Traditional financing does not work. Banks only want to see services and charges,” he said. “The banks must look into it and see if there is a different model that can be used.”

Jones said last week’s demonstration was part of the taxi industry’s efforts to address all the stakeholders in the value chain — “the vehicle manufacturers, the banks, the dealers, tyre guys, insurance, you name it”.

Escalating costs can’t be passed on to users of public transport — 72% of whom use the taxi system on a daily basis — because they can’t afford to absorb further price increases, Jones said. Inflation is also not coming down. “Some people have started walking to work. They don’t even have R5,” he said.

The Toyota Quantum is the preferred vehicle for taxi owners but original replacement parts are pricey. Jones explained that the Toyota HiAce — what is generally known as a minibus taxi — has proved robust and reliable, and is standing the test of time. Alternatives to the Quantum have proved unworthy, he said.

SA Taxi Finance said it would support Santaco in consulting all stakeholders. It noted that the two entities had agreed to work together to seek cheaper funding and hoped that the government could help to facilitate this.

Apart from high interest rates on loans, the taxi industry has also bemoaned the high cost of vehicles, especially the Toyota Quantum, which has almost doubled in the past ten years. This prompted taxi operators to stage a protest outside the Toyota plant in Durban four weeks ago.

Toyota South Africa’s senior manager for corporate communications, Clynton Yon, said the motor manufacturer had done all it could to keep costs down.

The Quantum 2.7 Sesfikile 14-seater debuted in South Africa in 2007 with a price tag of R208 000 and evolved into a 16-seater currently priced at R401 000 – a 92.6% price increase. “Inflation since 2007 has averaged at 6.1% per annum. That alone would necessitate an 80. 8% price increase from R208 300 to R376 651),” Yon said.

Despite being locally produced, most of the vehicle’s componentry is imported and this has a major effect on the cost of the vehicle and so the Yen/Rand exchange rate also needed to be factored in

“In 2007 the exchange rate was 16.34 yen to 1 rand. The exchange rate is currently 8.3 yen to 1 rand, which in real terms means that our local currency has devalued by 50% to the Yen in the 10-year period,” said Yon. “Using the exchange rate as the formula, one would therefore arrive at a retail price of R409 389. Note that the current selling price is R401 300 which means that Toyota has absorbed a fair percentage of the costs associated with inflation and the weak exchange rate.”

Yon said Toyota had undertaken a number of initiatives, including producing the Quantum locally, to try and increase local content in order to make it as competitively priced as possible,

“By way of comparison, the Hilux 2.0 VVT-I – a locally produced model with higher percentage of local content – was priced at R130 000 in 2007. This model in new-generation guise carries a price tag of R242 000, which represents an 86.2% over the same 10-year period,” Yon said.

Toyota South Africa Motors said several talks have since taken place with South African National Taxi Council and SA Taxi Choice (the industry’s business wing). Toyota said it entered the discussions to find a solution to ensure that taxi operators and commuters are the real beneficiaries in the taxi value chain. The company however said it could not give more specifics until such time as there is mutual agreement by the parties.