Johannesburg - The wheels are coming off the auto trade business as South Africans buckling under the yoke of debt are now dumping big ticket items - starting with their cars.
Banks are repossessing vehicles at nerve-wracking speed - a rate of 7 000 cars a month.
Motor dealerships are either cutting jobs or shutting down. The leadership of the motor industry trade union, the Motor Industry Staff Association (Misa), says that it lately only does consultations with employers to fend off retrenchments.
"It's right across the sectors we organise, from the big auto retailer groups to the small and independent operators, including vehicle service centres," says Dana de Villiers, the chief executive of Misa.
The current state of affairs stems from the sharp fall in new vehicle sales. Last month 6 908 fewer cars were sold compared to the corresponding period a year ago, representing a decline of more than 21%.
Brand Pretorius, chief executive of McCarthy Limited, one of the country's biggest auto retailers, says he hopes the lowest point in the current declining sales cycle is something of the past.
"These low levels of sales will unfortunately lead to further dealer network rationalisation and consequent job losses," he says.
The National Association of Automobile Manufacturers of South Africa (Naamsa) expects new vehicle sales to remain under pressure well into next year as a result of the cumulative impact of past interest rate hikes, the decline in the real purchasing power of consumers due to high fuel and food prices, and lower economic activity levels.
But the new vehicle export market has remained buoyant, with already far more vehicles sold in the year compared to last year.
Naamsa executive manager Norman Lamprecht says the global financial turmoil remains a risk but he expects the export business to remain vibrant because of South Africa's diversified export markets.
"We export to 127 international markets and mostly premium segment vehicles," he says.
"Despite deteriorating consumer and business sentiment, the South African economy remained in a relatively good position to withstand the current global slowdown and extreme financial market volatility.
"Existing vehicle export contracts would continue to lend support to domestic vehicle and component manufacturing activities. However, the expected international economic slowdown and the substantial recent decline in new vehicle sales in various major global markets could impact on the industry's export sales in 2009," he says.
Globally the auto business is in a worse situation; especially in the world's largest economy, the US. The US auto industry has been shaken to the core, with leading auto- makers now considering mergers to stay afloat. Ford and Chrysler have each seen sales drop more than 30% over the past year.
Toyota is aggressively fighting slowing sales with a $250m (about R2.7bn) advertising campaign that offers zero-percent financing on 11 models. The Japanese auto giant is flush with billions of dollars in cash and plans to use the money to boost its market share while Ford, General Motors and Chrysler are at their weakest.
The concerns around the weak demand for vehicles has seen the platinum price take a beating and a reduction in export earnings for South African platinum producers.
In South Africa, Pretorius says the strict lending criteria of the National Credit Act are further inhibiting the private buyers' market.
"Due to high levels of bad debt, resulting in a substantial number of vehicles being repossessed, vehicle finance houses are also adopting a more conservative credit policy," he says.
"In many cases depressed trade-in prices are preventing transactions as the value of the prospective buyer's trade-in tends to be less than the outstanding balance owed to the bank. These low levels of sales will unfortunately lead to further dealer network rationalisation and consequent job losses."
Marcel de Klerk, Absa Bank's executive for vehicle and asset finance, says many consumers, especially new buyers, have overextended themselves.
"They are taking advantage of the NCA determination that vehicles can now be bought without paying a deposit. They are opting to pay off their cars over a maximum period of 72 months instead of the previous 54," he says. "After 72 months they end up with a balloon payment that is more than the car is worth."
He counsels prospective buyers not to opt for the 72-month term but rather to buy cheaper cars.
"In more than 50% of all Absa's vehicle financing deals, consumers go for the 72-month option. The same number of buyers elect not to pay a deposit and 30% of all buyers land up with an enormous balloon payment at the end of 72 months."
Cosatu has reacted with shock to the high vehicle repossession figures. The giant trade union blames the government's inflation targeting policy for the repossessions.
"It is disturbing that WesBank alone reports a 93% increase in repossessions between July and September compared to the same period last year, with Absa reporting 30%, and Standard Bank 28%," said spokesperson Patrick Craven.
"Cosatu does not accept that this rise was unavoidable. This rapid increase in repossessions cannot be blamed on the global economic meltdown, which has only just happened and whose full effects are yet to be felt in South Africa.
"The main reason for this upsurge can only be the relentless rise in interest rates, as a consequence of the Reserve Bank's misguided inflation targeting strategy.
"Cosatu has consistently warned that this would lead to more repossessions and that it will, at the very least, slow down job creation."
- City Press