While consumers may have enjoyed some reprieve from the interest rate cut in July, the motor industry didn’t.
New vehicle sales continued their downward trend according to results released by the National Association of Automobile Manufacturers of South Africa (Naamsa).
“While the small interest rate cut during July was warmly welcomed by industry and consumers alike, it may take some more incentive from the Reserve Bank to jump-start the economy and entice consumers back into the new vehicle market,” says Ghana Msibi, WesBank Executive Head of Motor.
“While small, its effects will be enjoyed by household incomes in the longer term, but another cut before the end of the year would be welcome and effective.”
Msibi added that retrenchments across the board are hitting all sectors hard and the motor industry is feeling the effects of significantly reduced spending power.
“Consumers simply cannot afford to replace their vehicles, never mind enter the market for the first time,” he said.
Wesbank’s data shows that the average value of a new car financed in July 2019 was R324,593, a substantial increase from R307,445 in July 2018.
The group added that substantially more people are now applying for loans for used vehicle (112,606) compared to new cars (46,632)
July was the longest selling month of the year with 23 working days. While this technically makes the market’s performance even worse, it is interesting to note that demand is increasing.
“WesBank experienced its best month this year in applications received for finance,” said Msibi.
“While this clearly didn’t translate into sales, it is reassuring for the industry that consumers are at least shopping for vehicles. Industry has to understand what is limiting the conversion of this interest into actual deals – whether new or pre-owned vehicle purchases – which is likely driven primarily by affordability.
“Consumer behaviour in those deals that are concluded has also shifted significantly towards linked interest rates over the past 18 months,” said Msibi.
“This is indicative of a market expecting interest rates to decline over the period of the contract and consumers being hopeful of savings over the contract term.”