Subdued growth for car sales this year

Domestically‚ expectations of subdued gross domestic product (GDP) growth and above-inflation new vehicle price increases - as a result of the sharply weaker exchange rate and the April increase in CO² vehicle emission taxes on new cars and certain categories of new light commercials - will contribute to a more difficult trading environment.

However‚ according to the National Association for Automobile Manufacturers of South Africa (NAAMSA)‚ the lower interest rate environment should continue to lend some support to the domestic market.

Other positive factors‚ it says‚ include replacement demand‚ the highly competitive trading environment‚ ongoing attractive incentives and high technology new model introductions.

"Over the medium term‚ pre-emptive buying by consumers to avoid expected increases in prices of new motor vehicles‚ as a result of the weaker Rand‚ could lend additional support. Moreover‚ over the next four months replacement demand by car rental companies should also contribute positively‚" it says.

Sales slightly higher

Statistics compiled by NAAMSA and released by the Department of Trade on Monday (1 July) showed that aggregate Industry sales of 53‚562 units for June reflected an increase of 3.3% or 1‚690 vehicles from the 51‚872 units sold in June last year‚ which NAAMSA said was largely in line with industry expectations.

The new vehicle sales statistics‚ however showed that export sales registered a surprising 10.6% decline in volume terms.

Wessel Steffens‚ head of Absa Vehicle and Commercial Asset Finance‚ says he still expects new vehicle sales to grow with mid-single figure percentages for the year.

"Growth off the high base of 624‚000 new units sold in 2012 is seen as positive‚ but will be challenged by increasing inflation risks‚ exchange rate movements‚ the level of unsecured lending and increasing utility costs‚" he notes.

He maintains that interest-rate sensitive sectors in the economy‚ such as the vehicle sector‚ will continue to be supported by lending rates expected to remain low for longer‚ which will support the affordability of vehicle finance.

"Given that many consumers are still highly indebted and finding it difficult to obtain credit for higher priced vehicles‚ demand for favourably priced entry-level vehicles and good quality used vehicles will remain strong."

New models

According to Steffens‚ the entry-level passenger car and new model releases‚ which accelerate demand‚ are expected to be the main contributors to growth in 2013.

He also argues that expected higher new-vehicle price inflation as a result of the weaker exchange rate will over time have a positive impact on used car sales.

"The first quarter price inflation is at a level of 2‚4% on new vehicles and -1‚4% on used vehicles. However‚ the recent sharp depreciation in the rand exchange rate will put upward pressure on vehicle price inflation during the rest of the year‚ which will affect the affordability of new vehicles and vehicle buying patterns‚" he says.

According to Chris De Kock‚ executive head of sales and marketing at WesBank‚ consumer demand‚ as reflected by the number of applications received‚ has come under pressure with a year-on-year reduction of 0.10%.

"The rate of applications per day has also been on a constant downward trajectory since March‚ indicating that overall retail demand is softening. This is echoed by lagging passenger vehicle sales growth. The growth in the unsecured credit market is also starting to affect consumer's affordability with household budgets even more stressed.

"We have been predicting an overall decline in the growth rate of the industry‚ mainly driven by the escalating cost of owning and operating a car‚ which includes increasing new car prices and rocketing fuel costs‚ compounded by a drastically weakening Rand. Consumers indebtedness remains worryingly high‚" De Kock says.

"Growth in the market is mainly attributed to the corporate sector while the retail sector is holding on to marginal growth. We therefore expect the market to continue slowing in the second half of the year‚ to an average annual growth rate of 2.5%‚" he said.