Alarm bells for South Africa’s car industry – with some hope around the corner
South Africa’s vehicle industry has seen a decline in new car sales and exports, all while facing a rapidly shifting market, bringing an array of new challenges.
However, there is also some optimism for the industry in the near future as interest rates are cut and the load-shedding pause continues.
This according to Billy Tom, the President of NAAMSA and Isuzu Motors SA CEO, speaking to the SABC.
According to the Automotive Business Council’s September car sales figures, which were released this past week, annual car sales declined.
During September, 44,081 new vehicles were sold, a 4.1% decrease compared to September 2023.
“I think the year lived up to what we predicted,” Tom said.
There were delays at the ports, high fuel prices, and rising interest rates, which affected consumers who were already heavily in debt.
However, he explained that in the second half, things began to improve. Inflation dropped to 4.5%, which was the Reserve Bank’s aim, and fuel prices decreased.
In addition, the respite in load-shedding has also boosted South Africa’s consumers and businesses.
“We’ve had two-quarters of no load shedding, and it’s a relief to us, it’s a relief to the consumer, and we are forecasting an improvement towards year-end.”
With possible interest rate cuts and fuel price decreases continuing, there’s optimism that vehicle sales will improve by the end of the year.
“We are very comfortable that we will see a better end to this year.”
Tom noted that this upward trend is expected to continue into next year. Further interest rate reductions, combined with falling fuel prices, are also expected to boost the market.
“My prediction is that the first quarter of next year is going to see massive growth, because it takes about 3 to 6 months for the consumers to feel the impact of rate reduction.”
While hope may be on the horizon for the vehicle industry, the car sales landscape is changing in many ways.
For example, this year, a decrease in the number of vehicle exports was also seen.
Tom explained that the 20% year-to-date decline, with a sharper 38% drop last month, is due to two main factors.
First, some vehicle models are nearing the end of their life cycle, which naturally slows production as new models are prepared for launch.
Second, the European Union, which receives 85% of South Africa’s vehicle exports, is experiencing a significant decline in demand, with double-digit negative growth in that market.
Additionally, local issues such as port delays and the impacts of load shedding have further slowed exports.
However, improvements in this area are expected as manufacturers ramp up production towards the end of the year.
Tom said the vehicle industry is currently shrinking, with growth at about -6 %. Imported vehicles are also declining but at a slower rate of -3 %.
Most of these imports are entry-level cars, which reflects the financial strain on consumers who are opting for more affordable options.
In the long run, the concern is that if imports keep growing, it could lead to “de-industrialization” — where more cars are imported than exported, which could harm local manufacturing.
This issue may need to be addressed by revisiting legislation, which will likely be discussed with the government at some point.
While exports and new vehicle sales may have lagged this year, new passenger vehicle sales actually increased modestly by 2%.
This, Tom explained, was driven mostly by the rental car sector, which accounted for 28% of sales last month, an increase from the usual 15%.
This growth is largely due to two factors: corporate rentals either expanding or replacing their fleets and rental companies preparing for the busy festive season as tourism returns to pre-COVID levels.
Another major way that the vehicle industry is changing is through the introduction of electric vehicles (EVs).
More people are making the shift to electric vehicles, and this past week, South Africa launched an EV minibus taxi.
Regarding the contribution of electric vehicles, Tom explained that while there’s been significant growth, it’s starting from a small base. Currently, EVs account for only about 1.5% of vehicle sales, with most of these being hybrids, at around 85.5%.
Hybrids are expected to be the next big step before consumers fully transition to electric vehicles.
The South African government has released a white paper on EVs, but industry players are still discussing its contents with the government.
Infrastructure, such as charging stations, is crucial, especially considering the country’s electricity issues and range anxiety for EV drivers.
Companies like Isuzu are taking a phased approach, focusing on alternatives like compressed natural gas rather than moving directly to electric vehicles, Tom added.
The expectation is that hybrids will play a larger role in the transition period, and further engagement with the government is necessary to ensure proper policies are in place. The shift to EVs will likely be gradual rather than immediate.
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