New Accounting Standards – substantial impact for Car Rental and Leasing Companies

IFRS 16 Leases, the new international accounting standard, will come into effect from 1 January 2019.  This will have a substantial impact on car rental and leasing companies.

During a presentation to SAVRALA members by accounting firm Deloitte Touche, Trevor Derwin, A & A Partner in the Johannesburg office explained that the essence of the changes lies in the accounting treatment applied by lessees. At present, the costs pertaining to leased vehicles are not reflected on the balance sheet; in the future all leases will have to be reflected on the balance sheet, with the exception of short term leases (less than 12 months) or low value leases.

“There are a number of considerations to take into account for companies who have lease agreements” said Derwin.  “These include the impact on the company’s financial report, key ratios, disclosures, the cost of implementation, the ability to access desired information, the impact of covenants and debt renegotiations and leasing strategies. It is essential that these companies start discussions with their bankers, analysts and lessor companies to ensure they are ready to implement the new standards.

“However, there will be no difference to the bottom line for leasing and rental companies,” he added.  “Despite the changes, there remains considerable advantages to leasing as opposed to buying vehicles.”

The main changes required by the new standards include the accounting treatment for lessees in a lease (where most leases will be brought on balance sheet as finance leases), the definition of a lease and enhanced disclosures.

Under the new standards, a contract contains a lease if it depends on the use of an identified asset and if it conveys the right to control the use of such an asset.   Further, the customer must enjoy substantially all of the economic benefits from the use of the asset during the lease term. In determining whether a customer has the right to control an asset, the customer must be able to determine how and for what purpose the asset is used.

A further consideration lies in substantive substitution rights.  In this instance, if the supplier has the practical ability to substitute alternative assets, and the supplier benefits economically from this right, the contract would no longer be considered a lease.

Many lease contracts today include both a lease and service component. Under the new standard these should be accounted for as separate components with the lease element capitalized to the on balance sheet lease, while the service component is expensed as incurred. Lessees may, however, elect to not separate non-lease components from lease components by class of asset.

“Identifying a lease will sometimes require a significant amount of judgment based on the elements of the definition of a lease” said Derwin.  “It is also important to determine the lease term, ie whether it is reasonably certain that an extension or termination option will be exercised.  In addition, identifying the appropriate rate to discount the lease payments will require significant consultation.”

“Although the new standards come into effect in January 2019, they will apply equally to existing as well to new lease arrangements,” he concluded.   “For those SAVRALA members who play the role of lessor, there is a business opportunity in that they can assist their customers to find the best solution.   We urge all your members, lessors and lessees alike, to discuss these changes with their auditors to ensure they are informed and ready to implement they changes as they come through”.

Download the PDF of the July 2017 presentation by Trevor Derwin:
IFRS 16 Leases – Technical Update

Concerns that PRE cannot manage GFIP exemptions


Tourism concerned that PRE does not have the systems to manage exemptions from GFIP

Encouraged by the positive statements made by the MEC for Roads and Transport in Gauteng, Ismail Vadi, at the recent Gauteng Public Transport Regulatory Entity (PRE) launch, the Tourism industry remains concerned about PRE’s capacity to serve both their customer’s needs and SANRAL in Q1 2012.

The Southern African Vehicle Rental and Leasing Association (SAVRALA) representing approximately 450,000 vehicles, the Southern Africa Tourism Services Association (SATSA), the Coach Owners Association South Africa (COASA) and the Federated Hospitality Association of Southern Africa (FEDHASA) were represented at the launch by the umbrella association Tourism Business Council South Africa (TBCSA). Several transport association spokespeople criticised the previous Gauteng Operating Licensing Board (GOLB) for long delays and arrogance when processing permit applications but the MEC assured guests that the new PRE board will seek partnerships with its stakeholders and operate with ‘efficiency; professionalism; integrity, and strict adherence to the regulatory regime’.

The concerns were raised in light of the fact that the TBCSA (Tourism Board Council of South Africa) have many members who operate transfer and chauffeur-drive services, which, like metered taxis, require both vehicle and driver permits. Although the TBCSA looks forward to a constructive and efficient engagement with the new entity, they remain concerned about how the PRE will cope with plans by the Department of Transport (DoT) to implement GFIP (Gauteng Freeway Improvement Project) open road tolling in February 2012.

Admitting that the current entity has an ‘outdated and obsolete IT system’ the MEC did not give any clarity on how the proposed toll exemption for commuter buses and mini-bus taxis will be managed by the PRE. This is important as the new entity will need to maintain, at least daily, the validity status of vehicle permits allocated to certain vehicle license plates for the SANRAL tolling system to ensure that expired or withdrawn permits do not continue to receive exemptions from the proposed GFIP toll fees. Failure to maintain a high level of integration is likely to see a real risk of increased cloned minibus taxi and commuter bus license plates if the exemption is to be applied only to a narrow group of permit holders.

It is also unclear at this stage how the toll exemption status of minibus taxis and commuter buses, with permits issued outside of Gauteng, travelling on GFIP, will be managed. Will these road users be exempt? These types of questions become real issues for inter-provincial minibus taxi and commuter bus operators and could likely require national integration with SANRAL by all PRE’s and remaining Operating Licensing Boards. Operators would, for example, need to understand whether their Mpumalanga issued permit will be cancelled due to non-payment of GFIP tolls.

The DoT, after changing all its ‘user pay’ model descriptions, is yet to issue any detailed directive in the Government Gazette to help the various metered taxis, transfer and chauffeur-drive services understand why they may not be exempted from tolls.

A further question mark remains around whether the growing number of scholar transport operators, who will require permits, will be exempt from GFIP tolls?

It seems ironic that one of the potential new priorities for the Gauteng PRE in early 2012 may well be to invest in systems and resources (at vast cost) to accommodate integration into the proposed SANRAL GFIP toll system, for the purposes of tracking and administering exemption from toll fees. PRE will therefore be investing in major IT infrastructure without earning any revenue for this obvious administrative minefield.

The TBCSA feels that this is once again an example of wasteful and thoughtless expenditure and a further reason why urgent discussions need to take place between the DoT and the broad transport industry regarding the use of the national fuel levy to fund GFIP and other infrastructure projects in a much more cost-effective and administratively streamlined manner. SANRAL has estimated GFIP administration costs to be over R5bn for the next five years. TBCSA feels that this estimate is very conservative and will be far exceeded when the cost of collection and enforcement as required by the Criminal Procedure Act (CPA) is considered. This excludes the additional costs that will have to be passed on to Gauteng consumers. The billions to be spent on administration should rather be used for the construction and maintenance of highways around the country.

By utilising the existing fuel levy and increasing this by an acceptable margin to fund additional road expansion and upkeep would avoid all the above mention infrastructure costs and could save the country billions of Rands in additional expenditure.

Editorial contacts:
Paul Pauwen

SAVRALA comments on BMW recall

October 2010

BMW is currently undertaking a massive worldwide recall of up to 348 000 vehicles which may be affected by a brake leak. The vehicles under the recall were produced between the 2002 and 2010 model years and include the BMW 5 Series, 6 Series, 7 Series, Rolls-Royce Motor Cars and BMW Alpina B. All are V8 and V12 engine vehicles. While BMW is now joining the long list of car manufacturers who have been forced to recall faulty vehicles in recent years, it should be noted that this particular fault will not place drivers in mortal danger. If a vehicle is affected, a small leak develops in the power braking system, causing a vacuum loss which in turn leads to a reduction of power braking assistance. However, mechanical braking is not affected and drivers will still be able to slow and stop their vehicles. Drivers who experience reduced power braking assistance are encouraged to schedule a service appointment with an Authorized BMW Center as soon as possible. Furthermore, all drivers of potentially affected BMWs will receive a letter asking them to schedule a service appointment with an Authorized BMW Center – all of which are being supplied with the necessary replacement parts.

SAVRALA comments “BMW has for many years been a very good supplier of vehicles to the car rental industry and there is no record of poor build quality. Currently our industry does not have any of the vehicles being recalled on fleet and this does not pose a threat or inconvenience to our customers and clients.”

SAVRALA comments on Mercedes recall

October 2010

Yet another luxury car manufacturer has joined the ranks of those forced to recall vehicles with potentially faulty parts. On 12th October, Mercedes-Benz South Africa launched a recall campaign on power steering systems of their C-Class and E-Class vehicles produced between 1 June 2009 and 28 February 2010.  These vehicles could potentially develop a leak of power steering fluid at the connection between the high pressure line and the pump. Following the gradual loss of fluid, drivers can expect to hear a whining noise from the pump. Higher than normal steering forces are then required, especially when parking. Mercedes-Benz has assured vehicle owners that in spite of this, the vehicle will remain stable.

Paul Pauwen, president of SAVRALA commented earlier today: “Mercedes-Benz has been a very reliable supplier of vehicles to the rental and leasing industry. They had notified us of the recall as soon as the problem was discovered.  Our members have agreed that all vehicles affected in their fleets will be sent to Mercedes for thorough checking. SAVRALA members’ foremost concern is for the safety of their customers and will therefore ensure that no vehicles that are affected by this potential hazard leave the depots.”

The inspections and potential repairs will be carried out by authorised Mercedes-Benz service hubs

SAVRALA comments on AARTO Roll-out delay

September 2010

The Road Traffic Management Corporation (RTMC) has announced that the proposed roll-out of the Administrative Adjudication of Road Traffic Offences (AARTO) Act is to be postponed in order to ensure effective implementation.

Prior to this, The South African Vehicle and Leasing Association (SAVRALA) had been granted access to The National Traffic Information System (e-NaTIS) in order to facilitate finding a practical, holistic and sustainable solution to the processing of fines, particularly in the vehicle rental and leasing environment.

SAVRALA has therefore been developing an automated system to help streamline the current process of re-directing fines so that the notice of infringement is issued directly to the driver, not the owner, of the vehicle. To this end, various regulation amendments have been proposed, focusing particularly on the nomination of drivers.

General Manager of SAVRALA, comments: “The fact that the AARTO roll-out has now been postponed will give SAVRALA more time to have the regulation changes implemented successfully. We are pleased that the RTMC is taking the time to address the challenges raised during AARTO’s pilot phase.”

Carbon Emissions Tax – is South Africa ready?

September 2010

Government’s carbon emissions tax is set to come into effect on 1 September 2010. The South African Vehicrned about the broader impact that this tax will have on its members and the general road user.

It has been said that South Africa is one of the few African countries that could contribute to mitigating climate change, a goal that is naturally shared by responsible businesses and individuals. The implemenle Rental and Leasing Association (SAVRALA) adds its voice to those major stakeholders who are concetation of a CO2 tax is therefore understandable in the global race to reduce carbon emissions. But – SAVRALA seeks answers from Government to a variety of concerns:

CO2 tax will be levied on new vehicles. What is being done about the large assortment of old – many unroadworthy – vehicles that continue to spew emissions into the environment unchecked?

The tax is a flat rate CO2 emissions tax. The tax will add anything from R5 000 to R20 000 to the cost of a new vehicle; a fact that threatens to have a negative impact on the already ailing motor industry. Furthermore, a flat rate tax does not take into account the fact that vehicles that travel less emit less carbon than those that are on the road day in and day out.

The tax will be levied at R75/gram of carbon dioxide emitted per kilometre for each gram/kilometre above 120 grams per kilometre. Only 0.4% of passenger cars sold fall into this environmentally friendly category. This problem is further compounded by the fact that car manufacturers cannot produce or import vehicles with less-polluting engines as the fuel available in South Africa is not yet clean enough to sustain them.

This tax will raise a potential R1-billion a year in revenue for the National Treasury. Are there plans in place to guarantee that the revenue earned from this environmentally-motivated tax will in fact be spent on environmental issues?

16th Annual SAVRALA MOTY Awards

September 2010

On the 22nd of October this year, SAVRALA will once again bring motor manufacturers and importers and their leasing and car rental customers together at the annual Manufacturer of the Year Awards. The objective of the MOTY Awards is to give recognition to those who have consistently provided superior levels of service and support – as judged by their leasing and rental clients. “Our members see the vehicle manufacturers and importers as their prime partners and we appreciate their support, as much as they value our custom,” says SAVRALA president, Paul Pauwen.

Throughout the year, SAVRALA conducts two surveys amongst its members. Rental and leasing members are asked to rate manufacturers and importers in various areas. Criteria covered in the Rental questionnaire include communication, support, maintenance, value and theft prevention. The Leasing questionnaire measures performance levels related to fleet pricing and residual values, maintenance and support, communication and marketing as well as dealerships. Vehicle model ranges and sales volumes are specifically not measured in these surveys.

Kondile & Associates, an independent market research company, facilitates an in-depth evaluation process in order to provide an accurate analysis of SAVRALA members’ impressions of the manufacturers and importers alike. MOTY Awards include Gold, Silver, Bronze and Most Improved across three categories, namely Overall, Leasing and Rental. Overall Awards are determined from the combined results of the rental and leasing divisions.

Last year, the coveted Manufacturer of the Year Award was scooped up by Hyundai – the first importer to receive this highly-regarded honour. Hyundai marketing director Stanley Anderson commented, “It has been one of our business objectives to be the first Importer to win the SAVRALA award. It took a lot of dedication from our staff and dealers to achieve this and all credit to them.”

SAVRALA encourages members who have not yet submitted their surveys to do so in order to be part of this valuable and exciting process. Good luck to all entrants!

Savrala and its members commit to protecting South Africa’s children

The 8th of June saw members of the travel and tourism industry coming together to prevent the sexual exploitation of children. At a high profile event at the Radisson Blu Gautrain Hotel, the Tourism Child-Protection Code of Conduct (“The Code”) was officially launched for the first time in South Africa by the local Code representative, Fair Trade in Tourism South Africa (FTTSA). After Kenya, South Africa is now the second African country to be a signatory to The Code.

Although South Africa is not generally considered to be a child sex tourism destination, several factors have raised concerns that the risk of South African children being exposed to child trafficking, prostitution, sex tourism and other forms of exploitation is ever-increasing. The tourism industry continuously strives to bring more visitors to our country, as increased tourism revenues will ultimately mean greater financial security for South Africans and more opportunities for our children. However, Thandiwe January-McLean, the CEO of South African Tourism, points out that “this also ironically poses a great danger to our children.” Add to this the influx of foreigners due to the 2010 FIFA World Cup™, and it is easy to see why the signing of the Tourism Child-Protection Code of Conduct was essential to ensuring that South Africa remains a responsible tourism destination.

The Code, an international initiative, was endorsed by a number of industry bodies at the Johannesburg event, including the National Department of Tourism, South African Tourism, the Tourism Business Council of South Africa (TBCSA), Federated Hospitality Association of Southern Africa (FEDHASA), Southern Africa Tourism Services Association (SATSA), Association of South African Travel Agents (ASATA) and the Southern African Vehicle Rental and Leasing Association (SAVRALA).

The private sector was represented at the Johannesburg event by 14 organisations, of which 5 are SAVRALA members: First Car Rental, Budget, Europcar, Hertz and Avis. Together with the 16 signatories at the Cape Town event, this makes a total of 30 signatories in South Africa.

The Code binds its signatories to the following six measures to protect children and create awareness around child trafficking:

  1. Establish an ethical corporate policy regarding sexual exploitation of children.

  2. Train personnel in the country of origin and in destinations.

  3. Introduce clauses in contracts with suppliers, stating a common repudiation of sexual exploitation of children.

  4. Provide information to travellers (eg: by means of brochures, posters, in-flight videos, ticket slips, home pages, etc).

  5. Provide information to local “key persons” at tourism destinations.

  6. Report annually.

“Effective child protection is only possible where all sectors of society are mobilised. The contribution of the travel and tourism industry is critical. When it comes to the sexual exploitation of children, there can be no innocent bystanders. Together, we must demonstrate zero tolerance to exploiters and make South Africa a tourist destination that is safe for children,’ says UNICEF South Africa Representative Ms Aida Girma.

General Manager of SAVRALA comments “By being signatories to The Code, SAVRALA and its members are proud to be role models in the fight against the exploitation of South Africa’s children.”

Click here to download the Code Pledge Form

AARTO And Savrala come together on traffic fine issue

June 2010

The Road Traffic Management Corporation (RTMC) recently announced that the proposed roll out of the Administrative Adjudication of Road Traffic Offences (AARTO) is going ahead as planned. The staggered roll out is expected to be completed by 31 December 2010.

Although the South African Vehicle and Leasing Association (SAVRALA) fully supports the implementation of AARTO, as well as its objectives, our concern for our members has stemmed from the problems posed by traffic fines. It is not car rental companies who are traffic offenders, but rather the clients driving the cars. Many SAVRALA members have accumulated large volumes of traffic fines, many of which have not been redirected by the authorities to the offenders in question. This has resulted in SAVRALA members being harassed and the delay in registration and licensing of vehicles etc.

Consider this statistic: SAVRALA members accumulate an estimated 400,000 traffic fines per annum. Of these 150,000 are from foreign residents and they all need to be re-directed. Currently the first infringement notice goes to the relevant SAVRALA member, not the driver responsible. This results in a lengthy process to re-direct the penalty to the driver – a mission which is often impossible. Not only does this delay the payment of the penalty, it also means that the SAVRALA member remains liable.

AARTO is managed by the RTMC to ensure the proper and effective functioning of its systems and processes, with law enforcement being the key focus. Both the RTMC and the Road Traffic Infringement Agency (RTIA) have agreed with SAVRALA that there is a need for a practical, holistic and sustainable solution to the processing of fines. They understand that avoiding the risks, delays and costs relating to the posting of documentation and subsequent manual processing is vital and have therefore granted SAVRALA access to The National Traffic Information System (e-NaTIS).

SAVRALA will now undertake to develop an automated system that pays specific attention to the needs of rental and leasing sections whilst complying with the AARTO Act and other relevant regulations. This system will help streamline the current process of re-directing the fines as the notice of infringement will be issued directly to the driver – valuable time will be saved and SAVRALA members will no longer be liable.

(Pot)holes in the bottom line

June 2010

The state of our country’s roads is having a seriously negative impact on South African motorists. Potholes and general decay of roads are costing road users tens of thousands of Rands in car repairs, not to mention the danger posed through the ensuing accidents. The South African Vehicle Rental and Leasing Association (SAVRALA) points out that car rental and leasing agencies are hardest hit by the poor road conditions due to the large fleets that they maintain. Bad road conditions are one of the recognised causes of excessive wear and tear and often lead to disputes as to who is accountable for the resultant costs.

It is admirable that ‘SANRAL has now raised R17.3 billion of funding for the expansion and upgrade of toll roads, particularly the Gauteng Freeway Improvement Project’, however, this doesn’t make the daily commute on suburban roads any less harrowing., the official gateway to the nation, encouraging tourists and investors to visit this incredible land of diversity, states: ‘while most national roads are tarred and in good condition, the more rural the road, the more likely it is to be pot-holed and poorly surfaced.’ Are we to understand that roads in suburbs such as Rosebank and Sandton, carrying large volumes of daily traffic, are now considered rural?

The 2010 National Budget clearly states that since 2004, ‘the country’s roads, transport, stadiums and buildings received a facelift.’ If that is the case, the question has to be asked: why are potholes and deplorable road maintenance of such concern to road users? The treasury goes on to say that one of the main changes to the budget for the next three years will be the allocation of R2.8 billion more for public transport, roads and rail infrastructure. The Johannesburg Roads Agency claims to maintain a steady response time of three days from the time a pothole is reported; a fact that road users are quick to oppose.

If one considers the fleets owned and managed by members of SAVRALA, the cost of constantly having to replace tyres and rims coupled with regular wheel alignments and repairs to suspensions leads to an increase in total transport costs. Ultimately it is the consumer who bares the brunt of the problem as the prices of goods and services continue to escalate.