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Cape Town - South Africans' fears of the impact of the weaker rand has likely caused monthly vehicle sales in July to increase to its best level since July 2007.
The rand has been depreciating against major currencies for some time, but has come under immense pressure in June, experiencing a four year low against the dollar.
"The driver of sales in July may have been the pre-emptive purchasing ahead of expected price adjustments from the impact of the rand exchange rate," said Sydney Soundy, head of vehicle and asset finance at Standard Bank.
"It is expected that the rand will remain on this trajectory in the months ahead. The rand will remain on the back-foot until global prospects brighten and commodity prices turn the corner."
New car sales in South Africa increased 7.5% year-on-year in July to 58 140 units, the National Association of Automobile Manufacturers (Naamsa) said on Thursday. In July 8.61% more cars were sold than in June 2013.
"Importantly, the average sales per day in July 2013 outsold July 2012 by 2 153 to 2 080," said Soundy.
So far this year 6.8% more (24 406) vehicles have been sold compared to the same period last year. The main contributors to this year’s growth were light commercial and medium commercial vehicles, with growth of 10.10% and 11.46% respectively.
So far this year passenger, heavy commercial and extra heavy commercial vehicles all experienced above 5% growth. Only buses had negative growth, but this was in small volumes.
According to Soundy vehicle sales volumes may still be boosted further by the prime interest rate, which remains at its lowest for over three decades, and continues to play a major part in maintaining SA consumers' appetite for debt.
However, the rand has been under pressure against all major currencies and this will have a negative knock-on effect on vehicle price inflation (VPI).
VPI on new cars has increased by 3% quarter-on-quarter compared to the 2.4% in the first quarter of 2013. In contrast VPI for used car prices has decreased to -2.5% from -1.4% in the first quarter.
"Manufacturers’ marketing and incentive programs in a competitive industry will continue to positively spur sales of vehicles," said Soundy.
"The industry is currently still experiencing the impact of the vehicle replacement cycle. The cycle is approximately five years."
For example, 2007 was a massive year in the industry with 623 850 new vehicles financed.
"At the end of a five year term most maintenance or service plans have come to an end and consumers risk large cash outlays in the event of major repairs to their cars," explained Soundy.
"In light of that and with intentions of recouping some value from a depreciating asset, consumers tend to purchase newer more cost efficient vehicles."
He said the subduing factors to impact vehicle sales could include the expected low GDP growth, the rand’s weakness which will transfer onto energy and food costs and in particularly fuel prices.
"The consumer is experiencing a more challenging economic context which has led to a more conservative appetite to take up debt, and will see pressure being put to bear on repayment ability and a risk for increased defaults and repossessions," said Soundy.
According to Cyril Zhungu, general manager of the motor division at WesBank, consumer demand remains very positive.
“This is backed by WesBank’s book data. July 2013 recorded the second highest month with 116 500 applications received. This represents year on year growth of 9%, compared to July 2012,” he said.
However, contract periods have increased slightly from 68 to 69 months on both new and used cars.
There has also been an increase in the demand for balloon payments, which has increased by 19% from January 2013 to July 2013. This indicates that consumers are using the structure of the finance agreement in order to maintain the affordability of the monthly repayments.
“In addition, we observed the average transaction value on new cars continuing to increase, recording an 11% rise over the past year," he said.
This is in line with the Transunion Auto CPI Index, which indicates that new car prices have increased in line with the rand depreciation against the dollar.
“WesBank foresees the market remaining positive for the remainder of this year, with a slight increase in activity in the used car market," he said.
"We believe that the biggest factor in the foreseeable future will be the effect of a depreciating rand and the ability of the manufacturers to maintain marketing activity in order to support vehicle sales.”
- Fin24
The rand has been depreciating against major currencies for some time, but has come under immense pressure in June, experiencing a four year low against the dollar.
"The driver of sales in July may have been the pre-emptive purchasing ahead of expected price adjustments from the impact of the rand exchange rate," said Sydney Soundy, head of vehicle and asset finance at Standard Bank.
"It is expected that the rand will remain on this trajectory in the months ahead. The rand will remain on the back-foot until global prospects brighten and commodity prices turn the corner."
New car sales in South Africa increased 7.5% year-on-year in July to 58 140 units, the National Association of Automobile Manufacturers (Naamsa) said on Thursday. In July 8.61% more cars were sold than in June 2013.
"Importantly, the average sales per day in July 2013 outsold July 2012 by 2 153 to 2 080," said Soundy.
So far this year 6.8% more (24 406) vehicles have been sold compared to the same period last year. The main contributors to this year’s growth were light commercial and medium commercial vehicles, with growth of 10.10% and 11.46% respectively.
So far this year passenger, heavy commercial and extra heavy commercial vehicles all experienced above 5% growth. Only buses had negative growth, but this was in small volumes.
According to Soundy vehicle sales volumes may still be boosted further by the prime interest rate, which remains at its lowest for over three decades, and continues to play a major part in maintaining SA consumers' appetite for debt.
However, the rand has been under pressure against all major currencies and this will have a negative knock-on effect on vehicle price inflation (VPI).
VPI on new cars has increased by 3% quarter-on-quarter compared to the 2.4% in the first quarter of 2013. In contrast VPI for used car prices has decreased to -2.5% from -1.4% in the first quarter.
"Manufacturers’ marketing and incentive programs in a competitive industry will continue to positively spur sales of vehicles," said Soundy.
"The industry is currently still experiencing the impact of the vehicle replacement cycle. The cycle is approximately five years."
For example, 2007 was a massive year in the industry with 623 850 new vehicles financed.
"At the end of a five year term most maintenance or service plans have come to an end and consumers risk large cash outlays in the event of major repairs to their cars," explained Soundy.
"In light of that and with intentions of recouping some value from a depreciating asset, consumers tend to purchase newer more cost efficient vehicles."
He said the subduing factors to impact vehicle sales could include the expected low GDP growth, the rand’s weakness which will transfer onto energy and food costs and in particularly fuel prices.
"The consumer is experiencing a more challenging economic context which has led to a more conservative appetite to take up debt, and will see pressure being put to bear on repayment ability and a risk for increased defaults and repossessions," said Soundy.
According to Cyril Zhungu, general manager of the motor division at WesBank, consumer demand remains very positive.
“This is backed by WesBank’s book data. July 2013 recorded the second highest month with 116 500 applications received. This represents year on year growth of 9%, compared to July 2012,” he said.
However, contract periods have increased slightly from 68 to 69 months on both new and used cars.
There has also been an increase in the demand for balloon payments, which has increased by 19% from January 2013 to July 2013. This indicates that consumers are using the structure of the finance agreement in order to maintain the affordability of the monthly repayments.
“In addition, we observed the average transaction value on new cars continuing to increase, recording an 11% rise over the past year," he said.
This is in line with the Transunion Auto CPI Index, which indicates that new car prices have increased in line with the rand depreciation against the dollar.
“WesBank foresees the market remaining positive for the remainder of this year, with a slight increase in activity in the used car market," he said.
"We believe that the biggest factor in the foreseeable future will be the effect of a depreciating rand and the ability of the manufacturers to maintain marketing activity in order to support vehicle sales.”
- Fin24
