While consumers may have enjoyed some reprieve from the interest rate cut in July, the motor industry didn’t. New vehicle sales continued their downward trend according to results released by the National Association of Automobile Manufacturers of South Africa (Naamsa).
Total market sales for July declined 3.7% to 46 077 compared to July 2018. This market performance reflected the year-to-date sales trend down the same amount for the first seven months of the year compared to the same period last year.
Ghana Msibi, WesBank Executive Head of Motor, says: “While the small interest rate cut during July was warmly welcomed by industry and consumers alike, it may take some more incentive from the Reserve Bank to jump-start the economy and entice consumers back into the new vehicle market.
“While small, its effects will be enjoyed by household incomes in the longer term, but another cut before the end of the year would be welcome and effective.”
Consumers appear to be shifting their allegiance to Light Commercial Vehicles (LCV) judging by July sales. LCV sales increased 2.9% year-on-year to 13 852 units. Dealer channel sales in the segment grew 4.1%, indicating that motorists are more inclined to drive bakkies than passenger cars.
By contrast, passenger car sales declined a hefty 8.2% to 29 477 units. Rental sales in the segment were down 9.3%, softening actual consumer demand on the dealer floor, which was down 7.6%. Year-to-date sales for passenger cars and LCVs are 5.4% and 1% down, respectively.
Msibi adds: “The economy remains tough. Retrenchments across the board are hitting all sectors hard and the motor industry is feeling the effects of significantly reduced spending power. Consumers simply cannot afford to replace their vehicles, never mind enter the market for the first time.”
July was the longest selling month of the year with 23 working days. While this technically makes the market’s performance even worse, it is interesting to note that demand is increasing.
Driven by affordability
Msibi concludes: “WesBank experienced it’s best month this year in applications received for finance. While this clearly didn’t translate into sales, it is reassuring for the industry that consumers are at least shopping for vehicles. Industry has to understand what is limiting the conversion of this interest into actual deals – whether new or pre-owned vehicle purchases – which is likely driven primarily by affordability.
“Consumer behaviour in those deals that are concluded has also shifted significantly towards linked interest rates over the past 18 months. This is indicative of a market expecting interest rates to decline over the period of the contract and consumers being hopeful of savings over the contract term.”