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Fuel price to impact consumers' vehicle choices

Johannesburg - The National Union of Metalworkers of South Africa (Numsa) strike has had little effect on vehicle sales for July, because most of the manufacturers would have factored it in, according to Nicholas Nkosi, head of Standard Bank vehicle and asset finance - personal markets.

However, it will still impact on the stock reserves going forward.

"The manufacturers will still have to catch up on lost production to make up for both the local and the export market," said Nkosi.

"The good news is that the strike was not prolonged. Therefore there has been little impact on the July vehicle sales figures.”

Business days

The month of July 2014 experienced a 9.2% increase in sales compared to June 2014.

Month on month only passenger (12.9%) and light commercial vehicles (3.69%) experienced positive growth.

Year-on-year monthly comparison shows a decrease of -1.5% in July 2014 compared to July 2013.

The average sales per day in July 2014 were less than July 2013 (2 136 vs 2 169 with the same number of business days (27) in both months.

Stronger fleet sales

Naamsa's July sales figures show that July’s sales have been propped up by activity in rental fleets, said Rudolf Mahoney, head of research at WesBank.

Despite less activity in dealerships, July saw an all-time record for vehicle finance applications  at 129 000, said Mahoney.

"Applications for new vehicle finance grew by 5%, year-on-year, however the market’s shift to used vehicles was seen in yet another month of double-digit growth for pre-owned vehicles, at 15%, year-on-year."

He pointed out that the growth had been at fleet level and not through dealer sales.

Car market

This is indicative that consumers are still under pressure due to higher fuel prices and another hike in the interest rate.

"This decline in the new market can be attributed to continued growth in the used car market, where buyers are finding better value for money," said Mahoney.

WesBank’s own data, comparing sales of used and new vehicles, shows a ratio of 1.39 used vehicles to every one new vehicle, a year-to-date increase of 11%.

Industry view

The current industry view is one of a decline to around 619 000 units from a total of 651 745 units sold in 2013, according to Wessel Steffens, head of Absa vehicle and asset finance.

"Interest-rate sensitive sectors in the economy, such as the vehicle sector, will be impacted by the strain on affordability resulting from a predicted further rate increase in September," said Steffens.

"Further interest rate hikes will negatively affect the affordability of and demand for vehicle finance."

In his view, the entry-level passenger car and new model releases are likely to continue to be the main contributors to sales in 2014.

"Higher new vehicle price inflation, currently at 7% for the second quarter 2014, as a result of the weaker exchange rate will impact the affordability of new vehicles and have a positive impact on used vehicle sales," he said.

"Although used vehicle price inflation will eventually also be driven higher, it is currently at a level of 1%."

Second half
 
New vehicle export growth will be driven by global demand, which is expected to grow on the back of improved world economic growth, as well as manufacturers’ export programmes and an expected weaker rand exchange rate compared to 2013.

Although now well behind the equivalent period last year, it is expected that the second half of 2014 will be buoyed by exports of the new Mercedes-Benz C-Class

"Given that many consumers are still highly indebted and finding it difficult to obtain credit for higher priced vehicles, demand for favourably priced entry-level vehicles and good quality used vehicles will remain strong," said Steffens.
 
"The current high fuel prices will keep consumers focused on buying more fuel efficient vehicles, with future fuel price trends remaining heavily dependent on movements in the international oil price and the $/R exchange rate."

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