Audi, BMW, and Mercedes-Benz under siege in South Africa
Financially strained South Africans are increasingly looking away from premium cars from brands such as Audi, BMW, and Mercedes-Benz, and these manufacturers admit they’re starting to feel the pinch.
This is because South Africans are choosing to avoid luxury cars and instead buy the new wave of Chinese vehicles entering the market.
The total sales of new vehicles in the first quarter of 2024 decreased by 5.6% compared to the same quarter in 2023 and slightly increased by 0.2% compared to the fourth quarter of 2023.
Various industry stakeholders and banks have noted that this decline is due to economic challenges, high interest rates, and escalating fuel costs.
Record load shedding, stagnant salaries, 475 basis point hikes in interest rates, and the overall escalating costs of living have hammered South Africans, even the rich.
DebtBusters reported that in the first quarter of 2024, the debt-to-income ratio for individuals earning over R20,000 per month is 127%, while it is 172% for those earning R35,000 or more.
These ratios are at or near their highest levels. The company expressed concern that unsecured debt levels are 41% higher for individuals earning R35,000 and more.
They stated that this trend is in line with inflation and suggests that without significant salary increases, these consumers are relying on debt to supplement their income.
This is a major factor in preventing South Africans from being able to purchase vehicles, and this is shown in the graph below, which highlights the decline in vehicle sales as economic strain took hold in 2023.
National Automobile Dealers Association (NADA) has noted a trend of consumers downsizing and turning to the growing number of Asian participants—particularly Chinese brands—which are making a significant impact in the market.
The buying-down trend can be seen in the strong growth of sales from cheaper brands such as Suzuki and popular Chinese brands, including BAIC, Beijing, Chery, GWM, Haval, Jaecoo, and Omoda.
Over the last four years alone, the cars listed above (with many only entering the market within the last couple of years) increased sales from 7,611 in 2020 to 30,850 as of 2023—a 305% increase.
Haval and Chery have been the main drivers of this trend. Naamsa’s data shows that Havel has sold approximately 19,904 units, representing an increase of over 2,000% from the 872 recorded in 2019. Chery’s sales are likely to be in the same region.
Suzuki has also been a notable participant, having seen immense growth in the past decade. Sales of its vehicles grew from 6,402 to 47,201—a 637% increase.
“To put Suzuki Auto’s growth in perspective, we have been able to sell more cars in January this year than we sold in the first two years – 2008 and 2009 – in South Africa combined.
“Since 2017, the automaker has broken its monthly sales record 25 times,” said Henno Havenga, General Manager of Sales and Marketing at Suzuki Auto South Africa.
Audi, BMW, and Mercedes under pressure
This shift has hit premium manufacturers such as Audi, BMW, Mercedes-Benz, and Volvo.
BMW stated that it is not the only manufacturer affected by the increasing cost of living. The overall passenger car market has shrunk in the last ten years.
It explained that, due to the challenging economic conditions, a new trend of downgrading purchases has emerged in the new car market.
In other words, South Africans can no longer afford premium vehicles and are seeking less expensive alternatives or choosing not to purchase a new car.
This is also evident in the data, as sales for Audi, Mercedes-Benz, and BMW have more than halved in the last decade, with total sales declining from 71,889 in 2014 to 26,202 in 2023—a concerning 63.5% decline.
According to Lightstone’s latest statistics, sales for Audi, BMW, Mercedes-Benz, and Volvo dropped from 28,757 units in 2022 to 26,836 in 2023, a 6.6% decline, which is around the annual average since 2014 (6.35%).
The sale of Audi vehicles, for example, has declined from 18,375 in 2014 to a mere 6,259 in 2023.
What’s worse is this trend seems to be accelerating, with year-to-date sales of German car brands in 2024 reflecting a drop of over 10% compared to the same period in 2023.
Commenting on these trends, Audi said that the decrease in sales in the larger premium market and overall passenger car sales should be considered.
Despite the drop in sales, Audi mentioned that it has been able to maintain and even increase its market share in some years.
Additionally, it explained that some South Africans are waiting longer to upgrade their cars, now waiting seven or eight years instead of the typical five years before purchasing a new car.
Despite some being able to maintain and even increase their market share in some years, the prevailing economic conditions and delicate sales numbers are starting to make their impact, with Mecedes-Benz showing the first signs of distress.
On June 13, 2024, Mercedes-Benz South Africa (MBSA) noted it would begin a consultation process regarding the restructuring of its manufacturing operations, potentially impacting 700 jobs at its East London Manufacturing Plant.
“In recent years, the automotive industry has contended with several challenges which have also impacted MBSA and its suppliers,” said MBSA
Challenges listed include “deteriorating macroeconomic conditions and prolonged port challenges.”
“Overall consumer sentiment has suffered as a result of fluctuations in the exchange rate, subdued household income, rising fuel prices as well as increased energy and logistics costs,” the company added.
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