April motor trade sales show resilience

Growth y/y in the value of motor trade sales improved to 12.1% in April‚ from 8.5% y/y in March. All the categories of motor trade sales showed a y/y increase during the month‚ with the exception of income from fuel sales‚ which declined sharply from 17.2% y/y in March to 9.3% in April.

Used vehicles sales displayed a sharp increase to 10.8% y/y in April‚ from a contraction of 0.9% in March. This is the highest level since July 2012‚ and may be an indication of consumers substituting new vehicles for cheaper options‚ in the used car market.

Although new vehicle sales displayed growth on a y/y basis‚ on a m/m basis they declined by 15.7%. The y/y growth in the value of motor trade sales seen may be attributable to statistical factors. Sales may have been negatively affected by a shortage of component supplies from Japan (following the March 2011 tsunami).

As identified in the recent less-negative trend of liquidations‚ insolvencies and civil judgements and summonses for bad debt‚ the rate of improvement in the state of personal finances is diminishing gradually.

This conforms to our expectations‚ as we have been predicting a decline in the growth rate of vehicle sales‚ despite the maintenance of interest rates at extremely low levels by historical standards‚ which should be favouring personal and corporate balance sheets in such a way as to encourage vehicle purchases.

There are two main reasons why we have been generally more sober about the outlook for vehicle sales than many others in the industry.

Firstly‚ vehicle sales were particularly strong‚ and unexpectedly so‚ during 2011 and one would therefore progressively be comparing current sales with a high base of sales for a year earlier‚ thus causing the y/y growth rate to decline.

Secondly‚ related to this‚ one of the key reasons for the strength of vehicle sales in the second half of last year‚ was the fact that the sharp fall in the Rand between August and November encouraged pre emptive buying of cars‚ in the belief that prices would begin rising sharply.

Thus‚ generally one expects growth in vehicle sales to continue sliding over the remainder of the year‚ and as households become increasingly debt stressed. Furthermore‚ one cannot help but conclude that in the event of a marked slowdown of growth internationally‚ this will also impact negatively on South Africa's economy and on the willingness and ability of domestic consumers to keep growing vehicle purchases at the same rate as the past year.

In conclusion‚ one is encouraged to report that growth in vehicle sales in April was still firm. The relative strength of vehicle sales in April is likely to serve as a reminder to the Reserve Bank that economic activity is not sufficiently weak to justify a reduction in interest rates in the short term.