Steven Barker, Head of Secured Lending at Standard Bank
While the Reserve Bank remains confident that the economy is unlikely to fall into a recession, the possibility that South Africa could slide into a recession if a second quarter of negative economic activity is recorded, will impact on the sales of light and commercial vehicles alike, says Standard Bank.
The increasing pressure on the automotive sector has been particularly felt in the sales of new vehicles, says Steven Barker, Head of Secured Lending at Standard Bank. This has been apparent in the slowdown of credit growth within households, to its lowest level since November 2012 when it stood at a high of 10.4%. In April this dropped to only 4.6%.
Commercial vehicle sales are also under pressure across all categories. Fleets are getting older as replacement cycles are lengthened, and this has resulted in rapidly increased vehicle maintenance costs. Fierce competition for loads between transport operators is also leading to reduced profit margins, placing further stress on the sector.
When considering that fuel costs have increased considerably and continue to fluctuate, insurance premiums are up, and wear and tear increases as vehicles exceed their replacement cycles, and their values depreciate, the pressures within the commercial sector become obvious.”
“It was therefore no surprise that recent sales figures revealed that during May, domestic sales of new light commercial vehicles, bakkies and minibuses continued to decline year on year by 5.1% to 13866 units, although in comparison to April of the same year, we have seen a marginal increase in the number of units sold. Sales of medium commercial vehicles, at 752 units continued to dropped 14.4% year on year whilst new heavy trucks and bus sales increased by 4.3% to 1785 units.
“Vehicle Exports continue to show a sharp decline year on year at 40.5% with a total of 15613 units, some 10000 less units than May 2013. Expectations of increased exports rest heavily on an improved production in the second quarter and an introduction of another vehicle for the export market” Barker says.
With inflation creeping past the 6% ‘comfort level’ set by the Reserve Bank, many potential car and commercial vehicle buyers could also be delaying purchasing decisions, says Mr Barker.
“There was a welcome respite last month when the Reserve Bank decided not to increase the base prime interest rate-despite many predictions to the contrary.”
It can be expected, however, that rates are on their way up. More cautious vehicle buyers will consider this and the impact it could have on mortgages and other financial commitments. On the other hand, many buyers will stay in the market and either ‘buy down’ or look to acquire a pre-owned vehicle in the belief that buying now could pre-empt further increases later in 2014 and early in 2015.”
“A bright spot in an otherwise subdued outlook for the remainder of the year is that exports of the new Mercedes-Benz C-Class are expected to begin in July. This could see volumes of exports increasing and a recovery in export sales in the second half of 2014.”
Although various authoritative sources within the industry expect either a decline (Naamsa 3, 5%) in new car sales, there is consensus that the second-hand car market will show significant growth in the personal market.
“The value of sales in this arena will be bolstered by the number of low mileage vehicles that come on the market with portions of service and maintenance contracts intact. This sector will be made more attractive by expected subdued economic growth. Further price increases for new vehicles will be above the inflation rate due to pressure on the rand and interest rates.
“Whilst businesses are under strain, we urge business owners to weigh up the increased costs of servicing older fleets plus the increased down-time on your business versus purchasing new vehicles. When your maintenance costs out way the cost of a new vehicle, then the obvious choice of replacing becomes financially sound”
“Many will regard the purchase of a new vehicle at this stage of the year as a way of staying in the market, and will attempt to stabilise their motoring costs by defining their budgets and holding them at a set level. Mechanisms like balloon payments, no deposits, as well as competition amongst finance houses will undoubtedly assist these decisions.”
“Other buyers will purchase down to stay with their favourite car brand, with the belief that we have weathered recessions before, and that economic downturns are cyclical events. They will rationalise that where there is a downturn there must be an upturn, and that the purchase of a new vehicle should be seen in this light,” says Mr Barker.
Also view:
Vehicle Finance, Car Insurance and Road Safety
Buying and Selling a Vehicle – Informed decisions and the Vehicle Retailer
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Light and commercial vehicle market adopting a cautious ‘wait and see’ attitude to new purchases
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