South Africa’s domestic vehicle market is expected to continue its recovery at a steady but tepid pace, but could face disruptions due to international lockdowns, says financial services firm, Nedbank.
The bank said in a research note that the contribution of the rental market is unlikely to improve further as arrivals from South Africa’s key overseas markets – the US and the large European economies – are still not permitted.
“Exports could be disrupted by a renewed implementation of measures to contain Covid-19 infections, with the developments in the major European economies, the main markets of local vehicle exports, particularly worrying.
“The rising probability of a double-dip global recession also poses a risk to the rebound in volumes,” it said.
National Association of Automobile Manufacturers of South Africa (Naamsa) vehicle sales data for October 2020, shows that the coronavirus pandemic has continued to have an impact on both supply and demand for new cars in the country.
Naamsa’s data shows that 38,752 new vehicles were sold during October. This represents the fourth consecutive month of sales growth by volume since reducing levels of lockdown, albeit 25.4% lower than sales figures from October 2019.
The year-to-date situation after the first 10 months of 2020 is even more gloomy at 196,664 units, which is 32.5% below the figure at the same stage last year.
Commenting on the October sale data, Nedbank said that momentum in the new vehicle market remained lacklustre in October, with total new sales remaining around a quarter below the level over the same month in 2019. On a year-to-date basis sales were still close to a third lower, it said.
“Passenger vehicle sales continued to show a steady but slow improvement, with the rate of contraction falling to 25.4%, the lowest rate of decline since the lockdown-related disruption in March.”
“Commercial sales weakened significantly after showing signs of pent-up demand in recent months. Light commercials, the main component of commercial sales, fell to less than 10,000 units for the first time since May.”
Other supply issues
The National Automobile Dealers’ Association (Nada) says it has identified major supply issues across significant Light Commercial Vehicle (LCV) brands due to Covid-19 restrictions.
This coupled with a number of key models running out of stock, contributed to a 22.6% reduction in light commercial vehicle volume on dealer floors, it said.
Nada, which represents car dealerships in the county, said that these supply issues are also being seen in the used vehicle market.
“Demand seems to be outstripping certain supply lines on LCVs, and while this is not an ideal situation, it could be worse if things were the other way around,” said Mark Dommisse, chairperson of Nada.
“It is interesting to note that medium and heavy truck and bus sales are faring marginally better this month. The improved showing by the heavier commercial vehicle segment signals a measure of improving confidence and this is where we are expecting significant growth once the government’s infrastructure development programme gets underway,” he said.
Dommisse said that dealers are enjoying strong demand for used vehicles – however, getting sufficient quality pre-owned stock is problematic.
“This situation has been exacerbated by the limited flow of decent stock coming from the rental companies, who destocked earlier in the year when demand for hire cars fell drastically, resulting in significant downsizing of these businesses.
“On the brighter side, there are several marketing incentive programmes running at local dealers as we head for the holiday season. With interest rates still low, it remains a good time for consumers to make purchases, where they can afford it,” he said.
Time to get a new car?
Combined with low-interest rates, banks’ lending appetites have supported market growth, said Lebogang Gaoaketse, head of marketing and communication at WesBank Vehicle and Asset Finance.
“What is intriguing, however, is that levels of sales and levels of demand experienced at WesBank seemingly don’t correlate. Market activity as measured by finance applications indicate a demand for vehicle finance at levels only marginally lower than October last year.”
This demand is also not unduly different year-on-year in terms of demand for finance for either new or used vehicles, he said.
Although market volume increased by 1,516 units over September, Wesbank said that sales were relatively worse off in October year-on-year. September sales were down 23.9% by comparison.
Passenger car sales were 25.4% down on October 2019 to 26,793 units, a relatively better performance than in September. Light Commercial Vehicle (LCV) sales were worse off, down 27.8% to 9,644 units compared to October 2019, and a September performance that was only down 8.2%.
That performance was a little more skewed in favour of passenger car dealers when looking at the dealer channel.
“We expect interest rates to remain low for quite some time as Government continues to make every attempt to stimulate the economy,” said Gaoaketse. “This continues to provide a good opportunity to purchase a vehicle at some of the most affordable lending rates.”
However, WesBank warned that demand in the new vehicle market may be waning off the back of Covid-19 as consumers simply have less need for mobility, never mind the affordability implications.
“With fuel sales down between 20% and 25% and public transport demand around 30% lower, consumers are simply moving around less,” said Gaoaketse.
He said that the mobility element of household budgets may be shifting more towards property investment as the housing market picks up, thanks to low-interest rates and the rising need to work from home.