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Cape Town - September saw new vehicle sales continue declining, according to the latest sales data from the National Association of Automobile Manufacturers of South Africa (Naamsa).
Only 47 399 new vehicles were sold in the past month, representing a decrease of 14.3% compared to the same period in 2015. Year-to-date, total industry sales have fallen 11.3% – close to WesBank’s forecast that the market would shrink 12% in 2016.
Despite September being the end of the quarter, which usually sees attractive deals to aid in meeting targets, new vehicle sales saw a sharp decline. The majority of vehicles in South Africa are sold to consumers through the dealer channel, where sales of passenger vehicles and Light Commercial Vehicles (LCVs) fell 14.4% and 14.8%, respectively. The contraction in the market is attributed to both rising prices for new vehicles as well inflation affecting consumer budgets.
Simphiwe Nghona, CEO of Wesbank's motor division, told Fin24 on Monday that South Africa’s new vehicle sales have remained in decline since the start of 2016, and the market is down 10.8% year-to-date. This has been fuelled by rising new car prices as well as uncertainty and low confidence among both business and consumers.
"However, the rand has clawed back some of its losses and the South African Reserve Bank has lifted its forecast for growth for 2016, from zero per cent to 0.4%. The effect of these factors on the economy will only be seen in the medium term, and until then, the new vehicle industry will continue to rely on vehicle manufacturers using marketing incentives to provide financial assistance to new car buyers," said Nghona.
Affordability
In his view, affordability will continue to drive other car buyers to shop in the pre-owned car market, where demand for used car finance is likely to grow.
"The automotive sector is not immune to what is happening in the economy. We at Wesbank see a decline in the quality of credit applications, for instance. That indicates the consumer is taking major strain in terms of disposable income and debt levels," said Nghona.
"From Wesbank perspective, we see that demand for used cars remains very strong and there is a shift where consumers prefer to purchase pre-owned cars as better value for money."
Also from a Wesbank perspective, he sees the average contract terms are remaining at a 69-month level. The replacement cycle is trending upward so people are holding on to cars - new and used - longer. This indicates to him that consumers are not in the mode of buying cars. They are rather spending money on maintaining their current cars.
New car prices have soared and in September this year the average new car financed cost R293 343, or 18% more than the same month last year. Along with higher prices for new cars, consumer budgets have to accommodate higher living costs and interest rate hikes. However, without a corresponding increase in income their budgets have become strained and they are unable to afford additional debt. This is reflected in the 18% drop in demand for new vehicle finance this past month.
Seeking value and more affordable instalments, buyers have turned to the pre-owned market. Application volumes for used cars have grown 6.7%, year-on-year, and this demand has driven up prices. The average deal value for a used car, for September 2016, was R191 236 – an increase of 8.7%.
Nedbank's economic unit said the outlook for vehicle sales remains poor due to weak economic growth, low confidence, fragile household finances and higher borrowing costs.
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