Johannesburg - The South African passenger car market is near the bottom of its down cycle, said an analyst in response to May's new vehicle sales numbers released on Tuesday.
New vehicle sales dropped 34.7% year-on-year (y/y) to 25 819 units in May, compared to April's 43.17% y/y fall, according to the National Association of Automobile Manufacturers of South Africa (Naamsa).
Econometrix economist Tony Twine said the number is still weak. However, a smaller drop than the one recorded in April indicates that the passenger car market may be over the worst. "It's good because it's not bad," he said.
Twine's view is echoed by others. The Wesbank vehicle confidence indicator for the second quarter of 2009 found that consumers' aversion to buying new cars had hit bottom.
Chris de Kock, executive head of sales and marketing at Wesbank, said a series of aggressive interest rate cuts and a slight improvement in debt servicing rates will push the vehicle market towards a recovery.
Twine said the passenger car market will receive an added boost, thanks to demand from car rental companies ahead of the Confederations Cup and the Fifa 2010 World Cup.
"Rental companies were left exposed by the Indian Premier League (IPL)," said Twine, referring to the cricket tournament recently hosted by South Africa.
Corporate cuts add to industry woes
He said: "Rental companies were extremely conservative ahead of the Confederations Cup and said they would remain so for the 2010 World Cup. But demand for the IPL has opened their eyes."
Sales to the car rental industry represented 7.8% of May's total Naamsa-reported industry sales.
A segment where no end to the downward trend is in sight is commercial vehicles.
Light commercial vehicles saw a sizeable 43.5% y/y decline, while medium and heavy trucks averaged a 48.4% nosedive.
Twine said the commercial segment of the market is still in pain because corporates are cutting capital expenditure on new equipment and, in some cases, downsizing operations.
He added the passenger car market typically leads the commercial vehicle market.
"I expect the June vehicle sale numbers will be stronger for all vehicle types based on recurring seasonal patterns," said Twine.
Naamsa said the next six months will be tough for the auto industry, but an uptick in domestic sales is expected towards the end of the year.
"An improvement in the automotive industry domestic operating environment would depend on a revival in consumer spending on the back of lower interest rates as well as on stimulatory government expenditure," said Naamsa.
Twine said he expected to see actual positive y/y growth in vehicle sales in 2010.
- Fin24.com