Motor industry optimistic, but consumer demand could waver

The South African government views the industry as a key growth area, with the industry aiming to double current production volumes produce by 2020.

In 2011, vehicle sales increased by 15 percent over 2010 and are expected to show a similar increase in 2012. The total number of new vehicles sold in 2011 was 492 956.

Strict labour laws

Although strict labour laws could hamper the plant set-up of motor vehicle manufacturers, the South African automotive industry offers many different competitive advantages compared to the rest of the world. As a result, many manufacturers have chosen South Africa as their desired choice for their manufacturing plants over other countries.

The motor manufacturers' increased confidence in South Africa, and the desire to increase investment in their operations, contributes to the local industry's optimistic future. In addition, export and local demand, coupled with interest rates being at an all-time low, further adds to the optimism.

With the government's plan to increase production and many manufacturers increasing their operations in the country, the sector is set to perform well in the coming years. However, the constant rise in fuel prices means that consumers may look at other more affordable modes of transport, such as public transport.

APDP initiatives

One of the main initiatives of the Automotive Production and Development Programme (APDP) is to increase the total number of vehicles produced in South Africa per year to 1.2-million units by 2020. It also plans to decrease the duties payable on the vehicles transported to consumers abroad and to create more jobs to secure the long-term sustainability of the industry.

From 2011 to 2012, prices of cars increased by an average of 4.3 percent. South Africa accounts for about 0.7 percent of the total new vehicles purchased worldwide in 2011, with the global number of new vehicles at 78 million units. The average loan portion on new vehicles in South Africa is 92 percent, indicating that on average only 8 percent is put down as a deposit and the average contract term of 58 months with people on average selling their vehicles after 3.5 years.

Sixty percent of SA vehicles uninsured

Statistics received from Wesbank, the largest vehicle financing company in South Africa controlling approximately 42 percent of the market, indicate that approximately 60 percent of the vehicles on South African roads are uninsured, even though this is a prerequisite for financing.

The car rental market accounts for about 13 percent of the total number of new vehicles purchased in South Africa.

Whilst these growth indicators are positive for the motor industry, it is obvious that South African consumers are taking advantage of interest rates being the lowest in recorded history and are throwing caution to the wind, despite the volatile economic environment.