Worse car sales slump expected in second half
Prices of several vehicle brands rose again on Friday - in some cases for the fifth time in 2016 - as motor companies sought to recover more of the added costs caused by the rand's continuing weakness against foreign currencies. Added to already difficult economic conditions and diminishing consumer confidence, it is expected to put a further brake on sales. Figures released on Friday by the Department of Trade and Industry showed sales decelerated 9.9% in the six months to June, compared to a year ago.
Push to buy down
The good news, say some analysts, is that new-car sales at the budget end of the market may be boosted by lack of good-quality used cars. Recent months have seen sales of used vehicles grow at the expense of new cars. However, Nissan dealer Mark White said it was becoming increasingly difficult to find low kilometre vehicles in good condition.
The average trade-in period is about five years, after new credit rules allowed buyers to finance vehicles over longer periods. Consumers, therefore, have to wait longer for the stage at which the resale value of the vehicle overtakes the outstanding finance debt and it becomes feasible to consider a trade-in. Consequently, said White, the market was being swamped by used cars out of warranty and with many kilometres.
WesBank's Rudolf Mahoney said this could push some consumers into cheap new cars. Faced with a choice between a new small car with a fresh warranty, and a bigger old one with no service support, more buyers would favour the former. White said many trade-in customers were already "buying down" to smaller vehicles.
The 9.9% market fall in new-vehicle sales to end-June matched the 10% forecast by WesBank at the start of 2016. Mahoney said there was nothing in the market to change its view that the second half would drop further. "We stand by our forecast that sales for the whole of 2016 will fall 12%," he said. "For that to happen, the second half decline will have to be about 14% and we still believe that will be the case," he added.
Clutching at straws
Combined sales of all new vehicles in June totalled 44,939, 10.6% less than the 50,250 in June 2015. For the first six months of 2016, the figure of 272,461 was 9.9% below 2015's 302,553. Car sales took an 11.7% knock in June, to 29,070 from 32,920 a year earlier. The downward trend was repeated in almost all other sectors. Exports also disappointed in June, dropping 1.4%. For the first six months, exports were down 0.9% but companies still insist the figures will improve in the second half of 2016 and set a new annual record.
The National Association of Automobile Manufacturers of SA sought to offer some succour for local sales, suggesting that recent economic data - an improved trade balance, lower than anticipated producer price inflation, and a rise in the Purchasing Managers' index - hinted at a possible economic and industrial recovery in coming months.
Standard Bank's Nicholas Nkosi thought this was clutching at straws. He agreed with Mahoney, who said: "I don't think we've hit the bottom. The current market difficulties will last at least another 18 months."
Source: Business Day