#JunkStatus still affects new vehicle sales

New vehicle sales volumes are forecast to remain relatively subdued up to year-end in view of prospects for economic growth, consumer and business finances and levels of confidence. However, local new vehicle sales will be supported by the factors of demand for entry-level passenger cars, new model releases and manufacturer incentives in an attempt to move stock.

Exports

New vehicle exports will continue to be driven by world economic growth and subsequent vehicle demand, local manufacturers’ export programs and vehicle export competitiveness.

Based on data published by Statistics South Africa, new vehicle price inflation slowed down to 6,3% y/y in April, contributing to an average of 8% y/y in the first four months of the year (6,9% y/y in January to April 2016). New vehicle price inflation may come under renewed upward pressure later in the year against the background of an expected general depreciation in the rand exchange rate, which will affect new vehicle affordability and sales.

Growth in vehicle finance is forecast to remain much subdued on the back of trends in and prospects for the economy, household and business sector finances, levels of confidence and vehicle and vehicle finance affordability.

Rental channel

The rental channel saw a positive performance, with May’s 6.8% sales increase pushing year-to-date growth to 20.1%. However, these gains were outperformed by the 2.5% decline in passenger vehicle sales – the largest segment in the market.

“May had a favourable calendar for sales, with four more working days than April and one more working day than the same period last year,” said Rudolf Mahoney, head of brand and communications for WesBank.

In May, there were year-on-year increases for average deal duration in both the new and used market. Statistics showed that consumers were hesitant to replace their vehicles, with the replacement cycle extending by 9% compared to May last year.

Those who did return to the market chose to manage risk by opting for fixed interest rates, to avoid potential future rate hikes. Data from WesBank shows a 19% increase in demand for fixed interest since South Africa’s economy was downgraded to junk status.

Affordability and value-for-money also continue to factor into purchase decisions. Demand for balloon payments has risen 13%, year-on-year, showing that consumers are seeking ways to lower monthly instalments. The demand for used vehicles continued unabated, with the used-to-new ratio reaching 2.37-to-1 in the past month.

“A lot of uncertainty exists as a result of recent economic developments, making it difficult to accurately predict the outlook for the motor industry for the remainder of the year,” said Mahoney. “For consumers in the market the picture is a lot clearer, though: spend wisely and try to hedge your risks.”

See the May 2017 vehicle sales stats in video: