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Car systems cash crunch

Jan 21 2013 15:22


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A Fin24 user wants to sell car navigation onboard units, but is struggling with consumers who can't pay cash. He writes:

I want to sell car navigation onboard units here in South Africa but the problem is customers do not have cash to buy them as they cost from R4 800 to R7 500 each, depending on the car model.

I have sold six units already and most customers like the units, but the problem is they don't have cash.

These car navigation onboard DVD screens with rearview camera look exactly the same as the original factory fitted car units. They enhance the inside of the car, and also contain advanced features and can use the car's own harnesses.

The units are suitable for almost all cars - from old to the latest model.

Now my problem is: how do I finance this kind of business, and also how do I convince companies like RCS to finance the units by giving the client credit so that I can install the unit in the customer's car?

I have done lots of demonstrations using my own car which I have fitted with the units.

Christo Botes, executive director of Business Partners and co-sponsor representative of the Sanlam/Business Partners Entrepreneur of the Year competition, responds:

The viability of this business idea seems to have a few challenges if the Fin24 user wants to scale up the business to something much bigger than just a local buyer and installer of the navigation equipment. He must consider the following challenges:
  • Cheaper options such as navigation features fitted to most cellphones and/or hand-held navigation devices that can be window mounted must limit the market for more expensive fitted units.
  • Motor manufacturer-supported motor plans, warranties and guarantees also limit the market as vehicles with the proposed navigation units could lose their factory guarantees and/or warranties should the car specifications deviate from what was originally factory fitted. 
  • The process to obtain the unit approved by vehicle manufacturers is a long and hard road – they will also have to approve the fitment agent. The same applies for tracking devices fitted to vehicles where you need to make use of a factory-approved fitment workshop.
  • The National Credit Act prevents credit being given without a means test being done on the person the credit is to be provided for, and the credit provider needs to be properly registered in terms of the act.
With the above taken into account, I suggest that the Fin24 user rather approach independent second-hand car dealerships where he can negotiate to sell and install the device in vehicles sold off the floor to buyers who wish to have such a device.

All car dealers make a margin on the vehicle itself and then receive a commission on all other services rendered such as securing finance, vehicle insurance, credit life assurance, motor plan, maintenance plan, service plan, licensing and accessories such as satellite tracking, mag wheels, bull bars, smash and grab resistance window film and even a navigation system.

The second-hand car dealer becomes your channel to actively sell your service or product. They must then just be properly incentivised to sell your product.

Strong support from the dealer principal and also a progressive commission structure that supports a higher commission the more units sold are essential.

I think a second-hand car dealership will be able to include the device as an accessory on their invoice, which will form part of the overall invoice amount that can be financed after meeting the deposit requirements of the financier of the vehicle.

The Fin24 user has his work cut out, but by tackling his business in this way he can expand his sales force without physically employing them. Your dealership network should address your financing problem as well as your limited capacity to do more.

I trust that he will find the dealerships to support and sell his superior product.

Adds Ian Reid, CEO of Platinum Black Consulting:

The Fin24 user needs to understand that each and every business needs a business plan.

I would suggest he outline his business model in a well articulated and comprehensive business plan. It can be three pages, but it should cover and address three main areas: 
  1. The expected business model - how the business will work; why it is unique and how it will make money and be sustainable.
  2. The avenues he is looking at as a target market.
  3. The expected returns for each avenue.
That in itself will give an indication whether his is a viable business and what he may have to put in, in terms of equity (sweat or otherwise) to make a success of the venture.

As with every business, the Fin24 user is an investor in his business and as such needs to do the “risk - return” profile for the venture.

He can then make an informed business decision on how best to take this venture forward.

The added advantage of the business plan is that he can address all eventualities, and adapt his planning and execution accordingly. This means there will be fewer surprises and a greater chance of success.

In addition, he can send the plan to any of the Fin24 experts and thus get some really good advice on refining the business without the risk of having started.

 - Fin24

*Share your experience of setting up your own business, or simply ask a question. Our business panel can put you on the right path.

Disclaimer: Fin24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers.

Under the ECT Act and to the fullest extent possible under the applicable law, Fin24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

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