Introduction
We encounter a recurring hurdle when consumers seek redress for defective vehicles: the Motor Industry Ombudsman of South Africa (MIOSA) “Usage Cost” calculation.
In January 2025, we formally addressed a letter to MIOSA highlighting a critical mathematical flaw in their “Vehicle take-back calculation procedure”. A year later, this flawed methodology is still being recommended to consumers and dealers alike.
Usage Costs?
The deduction of “usage costs” for defective vehicles returned in terms of Section 56 of the Consumer Protection Act 68 of 2008 is a controversial topic and open for debate.
Defective vehicles are not returned in terms of Section 20, but in terms of Section 56, which provides for the return of defective vehicles without penalty.
Since the matter of Motus Corporation (Pty) Ltd t/a Zambezi Multi Franchise v Abigain Wentzel [2021] ZASCA 40 the deduction of usage costs is allowed, until such time that the Supreme Court of Appeal deals with the question again, and reconsiders the wording of Section 20, and the spirit and purpose of the CPA.
The Supreme Court of Appeal in Motus Corporation (Pty) Ltd t/a Zambezi Multi Franchise v Abigain Wentzel paraphrased Section 20(5) as follows:
In terms of Section 20(5) upon the return of the goods, the supplier must refund the consumer the price paid for the goods, less any amount that may be charged in terms of subsection (6).
When the actual wording of Section 20(5) is considered, the Supreme Court of Appeal, with respect, erred when it failed to consider the whole of Section 20(5). Section 20(5) reads as follows: “Upon return of any goods IN TERMS OF THIS SECTION [referring to section 20], the supplier must refund the consumer…“
Consequently, we have to accept for the moment that usage costs are allowed to be deducted, but the question now arises, how should it be calculated
How are usage costs calculated
Section 20(6)(b)(i) of the CPA provides that “…supplier may charge the consumer a reasonable amount for use of the goods during the time they were in the consumer’s possession…”.
Initially, MIOSA recommended the AA Tariff for that particular vehicle, but even the fixed AA tariff (excluding fuel), provides for several costs incurred as an owner of a vehicle, for example insurance premiums, vehicle tracking premiums, etc.). As a result, the AA Tariff is cost of ownership, not cost of usage.
This was brought this to the attention of MIOSA as far back as April 2022, and they have since adopted a new method of calculating the usage costs, as set out in this Vehicle take back calculation procedure (“Procedure”).
The Procedure, as outlined, aims to provide a standardised approach to calculating the usage costs of a vehicle. However, upon closer examination, it becomes apparent that the method is fundamentally flawed. Specifically, the calculation of the usage cost per kilometre is independent of the actual mileage of the vehicle. This means that the mileage of the vehicle, which is a crucial factor in determining the usage costs, is effectively ignored in the calculation.
To illustrate this point, let us examine the Procedure’s calculation steps:
- Determine the value of the vehicle.
- Determine the SARS fixed cost according to the SARS table.
- Calculate 20% per annum depreciation on the SARS fixed costs.
- Determine the term of the ownership of the vehicle.
- Calculate the factor to establish the time factor (Period of ownership divided by 12).
- Determine the correct kilometres of the vehicle.
- Multiply the corrected SARS fixed cost by the factor.
- Divide the result by the kilometres travelled.
The mileage of the vehicle (Step 8) is only used in the final step to divide the result of the previous calculation. This results in a usage cost per kilometre that is invariant to the actual mileage of the vehicle, the time-based usage cost is simply expressed as a cost per kilometre.
The implications of this flaw are significant. If the mileage of a vehicle does not affect the usage cost per kilometre, it would mean that a vehicle driven for 1 kilometre would incur the same total usage cost as a vehicle driven for 100 000 kilometres. This is clearly illogical and contradicts the principles of depreciation and wear and tear, which are fundamental to the calculation of usage costs.
Low Mileage is Penalised
The MIOSA formula currently calculates usage cost by taking a fixed time-based value (derived from SARS fixed costs) and dividing it by the actual kilometres travelled.
When you make actual mileage the divisor, you create a mathematical paradox:
- Scenario A (The Low-Use Lemon): A consumer drives only 1km over 6 months because the car is constantly in the workshop. Under the current formula, the usage cost could reach an absurd R35,541.60 per kilometre.
- Scenario B (The High-Use Lemon): A consumer drives 100,000km in the same 6 months. Their usage cost drops to a mere R0.35 per kilometre.
The Flaw: The calculation is independent of actual wear and tear. It perversely penalises the consumer who was unable to use the vehicle due to its defects, while rewarding the consumer who used the vehicle extensively despite the defects.
Comparative Example
2 Consumers buy the same vehicle and each drive 1km and 100 000km respectively over a period of 6 (SIX) months.
Assuming that the value of the vehicle is R300 000.00 and that the SARS fixed cost is R88 854.00, the usage costs for both 1km and 100 000km would be as follows:
Scenario 1: 1km over 6 months
• Value of the vehicle: R300 000.00
• SARS fixed cost: R88 854.00
• Depreciation (20% of SARS fixed cost): R17 770.80
• Corrected SARS fixed cost: R88 854.00 – R17 770.80 = R71 083.20
• Period of ownership: 6 months
• Time factor: 6/12 = 0.5
• Corrected SARS fixed cost x time factor: R71 083.20 x 0.5 = R35 541.60
• Kilometres travelled: 1km
• Usage cost per kilometre: R35 541.60 / 1km = R35 541.60 per kilometre
Scenario 2: 100 000km over 6 months
• Value of the vehicle: R300 000.00
• SARS fixed cost: R88 854.00
• Depreciation (20% of SARS fixed cost): R17 770.80
• Corrected SARS fixed cost: R88 854.00 – R17 770.80 = R71 083.20
• Period of ownership: 6 months
• Time factor: 6/12 = 0.5
• Corrected SARS fixed cost x time factor: R71 083.20 x 0.5 = R35 541.60
• Kilometres travelled: 100 000km
• Usage cost per kilometre: R35 541.60 / 100 000km = R0.355416 per kilometre
Conclusion
The usage cost per kilometre for the 1km scenario is R35 541.60, while the usage cost per kilometre for the 100 000km scenario is R0.355416 per km, but the total usage cost remains R35 541.60 in both scenarios.
This highlights the flaw in the calculation method, where the total usage cost per is not proportional to the actual mileage of the vehicle but only to the duration of ownership.
In a fair and reasonable calculation method, the usage cost per kilometre would be reasonable. However, in this case, the calculation method produces an absurd result, where the usage cost per kilometre is extremely high for the 1km scenario and relatively low for the 100 000km scenario.
The solution
Divide the difference between the selling price when the vehicle was new and the most recent selling price by the number of kilometres on the odometer.
For example, if a vehicle sold NEW for R300 000.00, as was most recently sold for R200 000.00 with 50 000km on the odometer, the ACTUAL AND REASONABLE usage costs per kilometre would be R2/km ((R300 000.00 – R200 000.00) / 50 000).
With this calculation, the usage cost for the Low-Use Lemon would be R2.00, instead of R35 000.00.