Debt shackles new car sales

Johannesburg - The number of approved car loans had barely increased in 12 months, even though banks said earlier they would relax credit lending criteria.

This was according to Wesbank, one of the country's biggest vehicle credit providers, which on Wednesday published the fourth-quarter confidence index on car sales.

"The reality is that banks are still cautious," said Chris de Kock, head of sales and marketing at Wesbank in an interview.

"You can't lend freely when there is still relative uncertainty about the economic circumstances."

Risk analysts at banks were factoring in another round of retrenchments before the economic downturn had run its course. These would be mainly driven by corporate failures, he said.

Wesbank at present approves only half of the total number of applications it receives.

Half of these applications were approved immediately. The remainder were given the green light only after certain conditions had been placed on the loan.

For example, customers were often requested to submit a bigger deposit, or pay off the loan over a shorter term.

"We are desperately trying to increase the number of approvals. But we also have to be prudent," said De Kock.

"The quality of applications had deteriorated this year. Some of the applications we receive are absolutely mind-blowing," he said.

Used car market uptick

The indicator improved marginally to a reading of 4.7 out of 10 in October 2009, up from 4.3 in August. This confirmed that the vehicle market had reached its worst point and dealers were more optimistic about the market 12 months from now.

"It will be a slow and painful recovery," said De Kock.

Wesbank said that the single biggest obstacle to the recovery of the sector was high levels of indebtedness among South Africans. The country's household debt to disposable income ratio stands at around 76% this year.

Meanwhile, another key characteristic of the consumer vehicle market remained sustained demand for used cars. The used car market had experienced increased popularity in the downturn.

Wesbank's research found that 87.6% of respondents found the second-hand market more active than the market for new vehicles. This figure is up from 81.7% in July.

The used car market had helped numerous car dealerships pull through the recesson. However, De Kock has warned that the market was facing stock shortage problems.

This was because fewer repossessed vehicles were finding their way to showroom floors and consumers were choosing to hold on to their cars for longer.

- Fin24.com