QUESTION TWO [24]

Read the following article and answer the questions that follow Zero to R3.7bn in 20 years: the WeBuyCars story From humble beginnings, second-hand car dealer WeBuyCars today sells 8,000 vehicles a month, has eight warehouses across SA and employs 1,200 people. And it still sees plenty of room for growth 03 JUNE 2021 ADELE SHEVEL Second-hand car salesmen have long had dubious reputations but WeBuyCars Faan van der Walt goes a long way towards shattering that image. The executive director of one of SAs biggest secondhand car businesses, hes a former teacher who on weekends gives Sunday school classes. Van der Walts love of cars goes back a long time: it was his father who taught him how to fix vehicles, working with him on the family cars. So by the time he founded WeBuyCars in 2001, hed spent a fair number of years repairing dilapidated rides. Even when he studied teaching and was working as a teacher, he was always buying and selling cars on the side. "I got to know which cars to buy and what to look out for, and also [how to] build my capital," he tells the FM. Upon getting married, Van der Walt and his wife decided to head to London to earn money as teachers and to save. "We decided we would go and live there for two years and live off one persons salary. And we managed to do that," he says. When they returned to SA in the early 2000s, they brought back R300,000. They bought a house and car with R190,000; the rest was capital for the newly formed business. In that, they were soon joined by Van der Walts brother Dirk, whose marketing qualification proved to be a good fit. "Im very focused and organised, while hes more the dreamer, the explorer, the big thinker," says Van der Walt. "It was still not the idea to have this big business," he says. "In fact, it never was." Yet here he is, with a company that today buys about 8,000 cars a month, employs 1,200 people and is in the process of opening its eighth warehouse (in Germiston; the other facilities are in Durban, Gqeberha, Cape Town and around Gauteng). "People started noticing our business in recent years, but its been a really long and slow journey for more than 20 years, which probably laid a very solid foundation. Weve paid our dues and learnt our lessons and made great contacts." WeBuyCars has vertically integrated e-commerce and physical infrastructure, offering finance, insurance and other products. It buys most of its vehicles from individuals and, to a lesser extent, small companies, rather than purchasing fleet disposals from car rental companies. With more than 1,000 registered dealers on the WeBuyCars system, about 40% of sales go to dealerships and the balance to private individuals. All the vehicles WeBuyCars purchases undergo an independent quality check by inspection company Dekra. That report is displayed on the company website, showing the condition of each vehicle and what work might need to be done. Other services include warranties, service plans and other valueadded products such as tracking or insurance. The best-selling vehicles are Volkswagen Polo, Polo Vivo, Ford Figo, Kia Rio and Hyundai i20 generally those cars that sell in high volumes when they are new, says Van der Walt. "When you look at us, we typically have what you [see] when you stop at the traffic light, and its a true representation of what youd find there." The company is arguably the biggest second-hand car dealer in SA, in a solid sector. There are about 11-million cars registered and licensed in the country. WeBuyCars data shows that a vehicle is likely to change hands five or six times in its lifetime: clients who buy new vehicles tend to keep them for about six years, and those who buy second-hand keep their cars for an average of just more than three years. But with disposable incomes under strain and new vehicle prices rising, consumers are expected to trade down from new to used vehicles. And the disruption of global vehicle production during the pandemic has led to stock shortages of certain new vehicles, driving up demand for used vehicles even further. In addition to its new Germiston warehouse, WeBuyCars is planning on expanding to smaller towns to meet demand. And there are plans afoot to venture into the kind of space occupied by US company Carvana. Its a platform that allows customers to buy a car online and have it delivered to their home. The return policies and mechanisms are such that if a customer is not happy, they can return the vehicle and secure a refund with the click of a button. Van der Walt believes that it is the industrys role to ensure people are educated and make the right choice when buying a vehicle. "Weve seen people come in here and say: Ive got R100,000. Now, with R100,000 you can buy a very old BMW X5 with 300,000km on the clock, and its bound to be costly to maintain. Or you can be responsible and buy a Kia Picanto that is two years old, and youre going to be happy you bought the car," he says. "We need to guide people and help them make the right decision and help educate the sales staff to do that. We need to do that as an industry, to make sure we take that seriously." Unlike in Europe, where people are less concerned about what they drive, in SA your car is "like an extension of who you are, and it reflects your personality. And it varies from province to province," Van der Walt says. On this count, WeBuyCars is able to offer some interesting insights. The typical KwaZulu-Natal customer, for example, will tend to sell a newer vehicle of a higher value because they move onto the next vehicle sooner. These vehicles tend to be financed, so WeBuyCars settles the bank finance. In the Western Cape, in contrast, customers tend to buy their vehicles cash and keep them longer, and their cars service histories are more intact, so its overall a more financially responsible customer. "Gauteng is a mix of the two," says Van der Walt. The price range of the vehicles runs across a wide spectrum. Right now, there are a number of vehicles under R30,000 for sale on the companys website though as Van der Walt points out, these are typically "fixer-uppers". The most expensive was a Porsche Cayenne Turbo "sold for R2.2m" recently. While WeBuyCars has an IT department of analysts and data scientists working on formulas and algorithms to determine prices, people are also sent out to assess vehicles in a way that technology cant. "Our hit rate is very high on valuations, and right now a large percentage of our business is repeat and referral business," says Van der Walt. "We never had a big plan. We had a turnover of R400m without having a budget." Today, turnover is probably close to R10bn. And while the company does have a budget now, "we still work on gut feel with many things", he says. "I had to decide whether to buy a piece of land for development and I was speaking to one of our shareholders. He was in London [and] I convinced him; I said: Listen, just trust me on this one. I dont have numbers, so its nice to have shareholders like that; they back you." Five years ago, WeBuyCars was restructured to accommodate new shareholders; the largest of these is private equity firm Fledge Capital (its in the process of exiting the company). Then Naspers wanted in on the action. Though that acquisition was stymied by the Competition Commission last March, it did draw attention to the growing business. And so, in September, Transaction Capital, owner of SA Taxi, came on board. Based on an enterprise value of R3.69bn, the price for a 49.9% stake in WeBuyCars was a maximum of R1.84bn. Last week, the partners agreed to increase Transaction Capitals shareholding to 74.9% (the remaining shares will be held by the family trusts of the founding shareholders). Van der Walt has been impressed with Transaction Capital. "Theyre also 20 years old, theyre also very entrepreneurial, the founders are still heavily involved in the businesses and theyre South African Santaco [the SA National Taxi Council] owns a large part of SA Taxi; it has this local flavour [which] I think is a really good fit for us." Van der Walt still sees room for significant growth he estimates the companys market share is 7%-8% in a fragmented market. "We could grow it to 10,000 [vehicle sales a month] within the next year, possibly 20,000 over the next five years; we mean to expand the offering." That means keeping up with shifting trends in car ownership and financing. Some parts of the world operate on subscription models that allow clients to use various vehicles; others are focused on shortterm rental finance models. "Its a combination of what an Uber would be and what traditional ownership would be," says Van der Walt. "And then the finance models your traditional WesBank finance model is on the decline; youd have maintenance included in there, your insurance, even fuel perhaps, and tracking." Amid all this, does he miss teaching? "I do, but I teach Sunday school, so that helps," Van der Walt says. In any event, he explains, "managing 1,200 people is also a bit like teaching".

https://www.businesslive.co.za/fm/features/2021-06-03-zero-to-r37bn-in-20-years-thewebuycars-story/

Questions:

2.1 Undertake a SWOT analysis of WeBuyCars. (12)

2.2 WeBuyCars has vertically integrated e-commerce and physical infrastructure, offering finance, insurance and other products. With reference to this, evaluate the strategy that WeBuyCars has embarked upon. (12)

QUESTION THREE [15]

Campbell and Alexander in a Harvard Business Review article in 1998 identified three camps of strategists:

Those with an operational efficiency focus;

Those with a future focus; and

Those who prefer a behaviour and culture focus.

Evaluate each of these approaches in terms of their relevance to organisations facing a crisis of uncertainty such as the COVID-19 pandemic.