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There is light at the end of the vehicle sales slump

10.07.2014

HOW is our economy coping? This is a question we ask ourselves far too often when looking at vehicle sales figures. We’ve seen that 2014 hasn’t been the greatest year for our economy while elsewhere in the world there seems to be a shift towards recovery and stabilisation.

I recently attended the WesBank Vehicle Sales Confidence Indicator for the second quarter of 2014, presented by the general manager of the Motor Division at WesBank, Cyril Zhungu. Straight off the bat, news wasn’t good. South Africa’s new vehicle market continues to decline, with price increases and interest rate hikes causing consumers to look at purchasing used cars for better value.

New car prices are increasing at an alarming rate due to economic pressures which force manufacturers to drive up the price in order to stay alive. Imported vehicles and locally manufactured vehicles relying on imported parts will continue to see price increases as the Rand is affected by the current economic conditions caused by labour unrest.

Therefore, in our thrift, we turn to looking at used vehicles for value. There’s an expected shift from one used car sold for every new car sold to a ratio of 1.5:1, which is still better than the 2.5:1 figure we saw back in 2010.

The main decline is seen in the passenger car segment while the LCV, MCV and HCV segments are relatively stable. The outlook still shows an overall decline in vehicle sales for 2014.

It isn’t all doom and gloom, though; we have several factors driving our local market and these include marketing from manufacturers and dealers which is on the up, the influx of new models and our interest rate which remains low.

It’s also important to remember that although sales are down they are nowhere near the lows experienced during the recession of 2008. The jump in sales post-2010 is now declining which in our current, uncertain economic climate, is to be expected.

Factors contributing to the lack of growth include the lower-than-expected GDP growth, our ever-increasing fuel price, the moderate interest rate hike and highly indebted consumers. We are under increasing pressure this year as consumers and I’m afraid, that for the short term at least, we’ll have to stick it out with the strikes crippling our economy further.

“Innovative marketing from manufacturers is stimulating the creation of a supply-push market environment, rather than demand-pull scenario as seen in the past,” said Zhungu. “Refreshed model line-ups and exciting products are also being used to entice consumers into bringing forward their vehicle replacement cycle.”

We might be experiencing a used-car boom at the moment but this will ease off as the supply of used cars decreases, because of demand. The lack of supply in the used will mean a shift into the new car segment again which WesBank estimate will occur towards the back end of 2015.

What we’re also witnessing is increased vehicle instalment payment periods by consumers. The average is 68/69 months which leads to us keeping our vehicles a bit longer at an average of 35 months. It takes around 43 months to break even on vehicle payments when trading in, so who foots the bill for the 13 instalments? Why don’t the manufacturers and dealers of course, formulate a plan to stimulate vehicle sales?

At the time of writing, General Motors ceased production of vehicles locally due to the metal workers strike while BMW cut production by a third because of the strike. This has detrimental effects on our economy as we lose out on export opportunities which at the end of the day costs us money.

The interest rates may still be at a low point but Wesbank forecasts that this will increase lightly over a number of months to help the economy. “Nonetheless, banks will continue to support the market by making credit accessible to those consumers who qualify,” ends Zhungu.

Article written by Sean Nurse
10.07.2014
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