What does the NAAMSA New Vehicle Sales Report for November 2012 tell us about the SA Motoring Industry?

Standard Bank Vehicle Asset Finance

Sales Performance Summary – Total by Market Segment:

Sales Performance Summary – Exports:

Sales Performance Summary – AMH:

General Macro and Industry comments:

• Standard Bank’s Economics Desk forecasted 2.5% GDP growth for 2012. Following the mining strikes and weak global growth, GDP growth for Q3 2012 was 1.2%. The 2012 forecast has now been revised to 2.3%.

• The year to date inflation is at 5.5%. The Statistics South Africa (Stats SA) Consumer Price Index (CPI) report release on 21 November shows that the CPI (Inflation Rate) has risen to 5.6% in October from 5.5% in September. The report shows that food prices are rising and the rand has depreciated by more than 9% since August. Standard Bank’s economic desk forecast the inflation rate to stay flat through 2013.

• The 50 basis points repo rate reduction in July 2012 followed a period of 20 months of unchanged rates – since November 2010. The prime rate is at its lowest for over thirty years, and has played a major part in increased take up of debt by consumers.

• Q2 Household debt to disposable income ratio has increased to around 76.3%.

• The number of consumers with impaired credit records remains relatively very high, making up 46.7% of the total credit active consumer base, according to the NCR.

• The increased fuel prices have impacted on the running costs of vehicles. Fuel prices have risen by 41.03% in petrol (inland) and 45.79% in diesel (inland) since Jan 2011 (Jan 2011 to Nov 2012). Further, the price of fuel in the country has gone up 61.98% in petrol (inland) and 57.59% diesel (inland) since 2008. (Reference: Statistics from the Department of Energy). Low entry level, fuel efficient vehicles remain popular, as a result.

• New vehicle prices have grown at lower levels than real income growth. New and used car price inflation slowed to its lowest level this year, touching 2.3% and 2.1% respectively, according to the TransUnion Q3 Vehicle Pricing Index (VPI).

• Consensus amongst economists expects the GDP growth to be muted in 2013.  Standard Bank’s Economics Desk projects GDP growth for 2013 to be around 3.1%.

• The growth predictions in the vehicle market in 2013 range between 4% – 7% in 2013. Our predictions are 6% growth. There are however, further risks to the growth numbers if the exchange rate depreciates and interest rates rise.

Impact of Strikes on the Economy and Vehicle Market:

• The Statistics South Africa quarterly report has shown that economic growth in the third quarter has slowed to its lowest level of 1.2%, falling from the 3.4% seen in the second quarter. This is below the expected growth of 1.5% for the third quarter. This fall will contribute negatively to reduce the initially expected GDP growth of 2.5% for the year.

• The report also shows that a lower production in all mining divisions caused a 12.7% drop in mining and quarrying output, and this has affected the finance and service sectors, which have also seen  slower growth of 1.8%, down from 2.1% in the second quarter.

• The Stats SA report has also shown the indirect impact on the vehicle market. There has been slow growth in the retail and motor trade sector of 1.7%, down from 2.7% in the second quarter, as well as in the transport and storage sector of 1.1%, down from 2.2% in the second quarter. This will have an impact on the sales of vehicles.

• On 28 November the Reserve Bank (Deputy Governor Daniel Mminele) expressed an opinion that “the negative impacts of the strike action on growth have not fully fed through and we are likely to see further weakness in the fourth quarter”.

General comments on NAAMSA sales numbers:

• Despite a lower economic growth environment, there are a number of factors that continued to support domestic sales. These include historically low interest rates, ongoing improvement in vehicle affordability in real terms and higher demand for credit by households.

• The year to date growth in total vehicle sales of 9.82% is still in line with growth expectations for 2012, albeit slightly dented by the impact of the strikes. Passenger and Light Commercial Vehicles are the main volume drivers of growth, at 11.58% and 6.26% respectively.

• The industry experienced decreased sales volumes in November compared to October (‑8.14%). This decline came from negative growth in the Heavy Commercial Vehicles, Passenger Vehicles, and in the Medium Heavy Commercial Vehicle space, at -22.4%,  ‑11.85% and -1.1% respectively. Light commercial vehicles, Extra Heavy Commercial vehicles and Buses grew by 1.92%, 9.23% and 2.5% respectively.

General comments on industry trends:

• Used and New Car Sales
  • The Used to New Car ratio has seen a very modest increase since 2010 – from 1.77 to the current ratio of 1.79 Used Cars financed for every 1 New Car.

• Vehicle finance consumer trends
  • The TransUnion third quarter report shows that most (74%) of the financed deals are done for consumers in the age band 25 – 55 years, however there is evident growth of finance in the age band below 25 years at 1.9%.
    • Standard Bank reflects an even larger contribution to financed deals by ages below 25 years, and a smaller number of financed deals (compared to industry) for over 55 year olds.

Comments on Standard Bank related trends:

• Average contractual term
  • Longer term periods (>60 months) remain very popular, particularly from personal/individual consumers.
    • The average contract term increased from approximately 58.3 months in November 2011 to 59.4 months in November 2012.

• Average settlement term
  • VAF’s average settlement term is 44 months. This relates to the period the consumer actually takes to settle her account.

• Average loan amount
  • The average loan (financed amount) per deal increased to R314,078 from R288,212 last year. In the personal market there was an increase from R202,710 to R224,847. The business market’s average deal size increased from R387,707 to R433,316.

• Personal vs Business Segment
  • VAF has increased its percentage of business written in the Personal Segment from 2011 to 2012. In 2011 VAF had 40% of its business coming from the Personal Segment. This has improved to 46% in 2012.

• Luxury Brands versus Others:

• Some statistics on Applications Received:

• Applications with deposits requested represent 43.47% of all applications. This is down from 47.65% in 2011.

• Applications with RVs requested represent 11.25% of all applications. This is up from 10.68% in 2011.

• Standard Bank’s ratio of New to Used vehicle application sat at 0.64 New to 1 Used.

[ Sydney Soundy commentary on the Naamsa figures on 4 December 2012]