Used car boom hits South Africa
The automotive industry is a cornerstone of South Africa’s economy, but it has been affected by the country’s cost-of-living crisis.
FNB said that the domestic automotive industry accounts for roughly 5.3% of GDP, with 3.2% coming from manufacturing and 2.1% from retail.
The manufacturing segment alone employs roughly 125,222 workers, which rises to over 400,000 jobs when the entire value chain is considered.
The industry is thus a crucial indicator of economic health.
However, it has faced several challenges in recent years, such as load shedding and weakened demand arising from the cost-of-living crisis.
Although total new vehicle sales increased modestly by 1.5% in July, overall volumes have been under pressure, showing a year-on-year decline since August 2023 due to weak local demand.
Year-to-date (YTD) total sales volumes declined by 6.2%, while new passenger vehicles declined by 5.0% and new commercial vehicles by 8.4%.
“While the YTD decline in commercial vehicles may reflect a correction following robust growth last year, the weakness in passenger vehicles underscores significantly weak consumer fundamentals,” said FNB.
“The rise in interest rates—from a low of 3.50% at the peak of the pandemic to 8.25% currently—has materially impacted consumer balance sheets and affordability.”
“Additionally, vehicle pricing, influenced by factors such as the rand exchange rate’s performance, has further eroded consumer affordability for new vehicles.”
Thus, consumers are holding onto their cars for longer or increasingly participating in the used-car market.
Used car boom
Stats SA data shows that real motor trade sales for used cars increased by 3.0%, but sales for new vehicles dropped by 9.7%.
In addition, the National Traffic Information System (NATIS) showed that the number of used vehicle registrations rose by 4.8% in the first six months of 2024 compared to the corresponding period in 2023.
“While used vehicles are generally more expensive than before the pandemic, the notable moderation in inflation should assist in underpinning consumer preference for used vehicles,” said FNB.
Domestic motor vehicle production has experienced a modest decline, dropping by 3.0% YTD in response to weak demand and a normalisation from the robust growth seen post-pandemic.
Other automotive segments are also under pressure. Production of bodies for motor vehicles, trailers, and semi-trailers is down by 9.1%, while the production of parts and accessories is down by 17.8%.
The external trade balance also highlights the general weakness in the domestic automotive sector, with the nominal rand value of imported vehicles down by 23.3% in the first six months of 2024, compared to the major 39.0% increase seen in 1H23.
“Overall, while the domestic automotive sector is experiencing cyclical weakness, particularly due to weak demand, part of this downturn can be attributed to a correction following the solid post-pandemic performance,” said FNB.
“Cost-of-living pressures, including rising vehicle prices, have slightly benefitted the used car market as consumers try to avoid the premium in new vehicle prices.”
“However, an impending interest rate cutting cycle, a more stable rand exchange rate, and expected improvements in household disposable income should provide some support to the automotive sector moving forward.”
Loading ...
