South Africans are holding back on buying new cars

The National Association of Automobile Manufacturers of South Africa’s (Naamsa) New Vehicle Sales stats for July 2023 show a muted year-on-year increase of only 1.3% as a result of the decline in passenger car sales due to a half-year of shrinking disposable income and economic hardships.

For the period under review, aggregate domestic new vehicle sales, recorded at 43,389 units, reflected a sombre increase of 567 vehicles from the 42,822 new cars sold in July 2022.

This was mainly due to the notable decline in the July 2023 new passenger car market at 27,839 units, which fell by 9,7% or a loss of 2,985 car sales, compared to the 30,824 new cars sold in July 2022.

Naamsa noted that this is a result of the effects of ten consecutive hike rates totalling 475 cumulative basis points of hikes that filtered through the economy, resulting in distressed borrowing patterns among households as debt service costs share of disposable income remain high at 8,4%, on average.

This is a telling sign that South Africans have pulled back from buying new cars as they continue to find ways to recover from mounting financial pressures.

Another notable decline was seen in the sale of medium commercial vehicles, which declined by 90 units or 11,6% to 683 units in July 2023, from 773 vehicle units recorded in July 2022.

Despite the negatives seen in the domestic numbers, there were some notable improvements in other sectors.

Export sales saw a substantial increase of 11,896 units, or 47,3%, to 37,064 units in July 2023 compared to the 25,168 vehicles exported in July 2022, albeit of a low base due to the effect of the July 2022 Kwa-Zulu Natal Riots shocks on production and exports.

The heavy truck and buses segments of the industry also reflected a positive performance during the month at 2,201 units, signalling an increase of 528 units, or 31,6%, compared to the corresponding month last year.

The total reported industry sales of 43,389 vehicles comprising dealer sales, rental industry sales, and sales to government and industry corporate fleets.

The breakdown of these four segments is as follows:

• Dealers represented 81.8% of sales, with an estimated 39,086 units sold.
• The rental industry represented 14.1% of sales.
• Government sales represented 1.7% of sales.
• Industry corporate fleets represented 2.3% of sales.

Market forecast 

Despite the decline in sales, Naasma believes this is the low point in the industry and was mostly expected due to the tough economic environment experienced in the first half of the year.

The Associated noted that there are good signs moving forward for the industry.

“The unchanged rates and improvements in inflation rates bode well for the car market as the second largest household investment cost for many South African consumers, considering the distressed borrowings patterns amongst households as debt service costs share of disposable income remain high at 8.4%, on average,” said the CEO Mikel Mabasa.

“The Producer Price index also significantly eased in June 2023 to 4,8%, compared to the 7.3% rate recorded in May 2023”, he added.

Other signs of relief include a lower fuel index recorded at 8.3%, food inflation revised lower at 10.3%, and notably, the consumer price inflation having gone below the SARB’s target range of 3% to 6% at 5.4% in June 2023, which was cited as the main reasons behind the unchanged rates in July. The last time the CPI was below the SARB target of 6% was more than a year ago, in April 2022.

Additionally, Naasma is encouraged by the collaboration between government and business, wherein 115 private company CEOs signed a pledge in July 2023 to help government turn the tide on South Africa’s economic challenges.

“The pledge will assist in achieving sustainable development and inclusive economic growth. Through the stewardship of Andrew Kirby, Naamsa’s former President and Toyota’s President and CEO, the auto industry will remain invested in supporting our country’s recovery efforts and strengthening our investment story into the future,” said Mabasa.

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