Car prices in South Africa are set to rise: economists

The impact of South Africa level 5 lockdown in April on local vehicle sales is clearly visible, with the National Association of Automobile Manufacturers of South Africa reporting that just 574 vehicles were sold over the entire month.

Domestic vehicle sales dropped by 98.4% from a year earlier to 574 units, the National Association of Automobile Manufacturers of South Africa said in an emailed statement Monday. That compares with average monthly trade of more than 41,000 units over that last 20 years.

In a research note, Nedbank noted that these low sales levels are completely unheard of and that the outlook for new vehicle sales for the rest of this year has also been dimmed by the effects of the Covid-19 pandemic.

This comes against the backdrop of an industry that was already facing a fundamentally weak domestic economy, it said.

“We expect fixed investment spending to plunge by almost 15% in 2020 and this will negatively impact sales of commercial vehicles.

“The rental industry, which has propped up passenger car sales in recent years, is also likely to cut back on purchases in the face of falling business and leisure travel, while the rand’s significant depreciation will eventually exert upward pressure on vehicle prices,” Nedbank said.

It also warned that lower activity in the vehicle sector will significantly contribute to the broad-based weakness in the economy, as vehicle manufacturing contributes 30.1% to total manufacturing and accounts for 457,000 formal sector jobs.

The group expects real GDP to contract by 7% in 2020, which is in line with the Reserve Bank’s projection of a 6.1% slump and National Treasury’s projected 5.4% contraction.

“Consumer demand will be constrained by lower incomes, the effect of which will more than offset the benefit of the 225-basis-point cut in interest rates.

“We expect fixed investment spending to plunge by almost 15% in 2020 and this will negatively impact sales of commercial vehicles.”


Read: New road rules for South Africa during level 4 lockdown

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Car prices in South Africa are set to rise: economists