Passenger vehicles and light commercial vehicles drive growth in vehicle sales numbers for March 2014

Sales Performance Summary – Total by Market Segment (NAAMSA flash includes Namibia, Lesotho, Swaziland & Botswana):

Sales Performance Summary – Exports:

Sales Performance Summary – AMH:

General Comments on March 2014 NAAMSA sales:

• The month of March 2014 experienced 6.9% more sales than February 2014.
• Month on Month all goods types experienced positive growth apart from Heavy Commercial Vehicles and BUS which had negative growth of -2.5% and 10.4%. Passenger vehicles had the highest growth of 6.9% followed by Light Commercial Vehicles which grew by 6.7%.
• Year on Year monthly comparison shows a decrease of -0.2% in March 2014 compared to March of 2013. The average sales per day in March 2014 were less than March 2013 by 2,314 to 2,215. (24 – 25 Days).
• Year to date (January – March 2014) comparisons shows that vehicle sales are down by -3.4% in the first three months of year when compared to last year.
• All goods types had negative growth year on year apart from Extra Heavy Vehicles and Bus which had 12.3% and 10.8% growth respectively. Passenger vehicles are down -5.0% and Light Commercial Vehicles are down 0.5%.
• The average number of sales for March since 2007 has been 51,388 (excl March 2014) and on average March has ranked as the best performing month since 2007. March 2014 has exceeded the average by 3,975 more vehicles.

General Macro and Industry Comments:

• The country’s Q4:2013 Gross Domestic Product (GDP) numbers came in at 3.8% q/q growth. This growth was established off a low base. Q3:2013 had come in at 0.7% (lowest q/q growth since 2009).

• At this past week’s MPC meeting the governor of the reserve bank chose not raise the repo rate. SA consumers have already seen a 0.50 bps rate hike in the beginning of the year, while economists are still forecasting another rate hike at the next meeting.
• Headline annual inflation rate (CPI) increased from 5.8% y/y in January 2014 to 5.9% y/y in February 2014. On average, prices increased by 11% between January 2014 and February 2014. Transport index increased by 1.5% of a percent point between Jan 2014 and Feb 2014, this was mainly due to a 39c per litre increase in petrol price. The annual rate increased to 8.0% in Feb 2014 from 7.8% in Jan 2014.SBR forecast for inflation peaks in Q2:2014 at 6.2% and averaging at 5.8% for the year.

• Fuel prices have risen by 35.3% in petrol (inland) and risen by 30.3% in diesel (inland) since Jan 2012 to March 2014. Further, the price of fuel in the country has gone up by 273.3% in petrol and up by 299.2% in diesel since Jan 2004. Fuel prices have risen by 84% in petrol (inland) and risen by 94.2% in diesel (inland) since Jan 2010 to March 2014. Further, the price of fuel in the country has gone up by 289.8% in petrol and up by 432.8% in diesel since Jan 2001.

• The rand has strengthened slightly against the dollar after averaging around R10.98 to the dollar in February to R10.76 in March 2014. The rand traded between a low of R10.73 and a high of R10.85.

Standard Bank VAF data:

• The Average Contract Term continues to rise as consumers search for affordability. This is from 66 months to 66.8 months (February 2013 to February 2014). The Average Term the account is retained in our books is 40 months.

• The percentage of Deposits to Total Applications has been decreasing, while the percentage of Applications with Residual Values to Total Applications trend is increasing consistently over the past two years. This indicates that the consumer is attempting to manage the monthly repayment amount at the minimum possible, and thereby assisting with the take-up of higher ticket value vehicles.
• The % of Applications with Deposit has decreased from 37.4% to 30.6% and the % of Applications with RV’s has increased from 9.3% to 14.6% (February 2012 to February 2014).

• Affordability is one of the biggest factors when it comes to consumers looking to buy cars. These statistics highlight the fact that the consumer have become savvier in order to stretch their affordability and purchase vehicles that they have aspired to own.

• The general advice for consumers to be cautious and responsible when taking up lending facilities remain increasingly relevant today, as has been the past. Consumers are advised to take up lending facilities that suit their pockets and for which their repayments/instalments still leave room, or cushion for unforeseen cost increases. Lengthening of finance terms and building of higher residual values into vehicle finance contracts aimed at reducing instalments need to be approached by consumers with utmost caution – the structuring of deals in this way may resolve affordability in the short term, but do not necessarily alleviate long term debt commitments that may be impacted by changing economic conditions. 

Impact of Further Rate Hikes:

• With the prospect of further rate hikes it is expected that this would seriously stretch the consumer’s affordability on what they can afford. If we take the average ticket price of a personal VAF deal which sits at around R262, 806 on the current prime rate (9.0%), monthly instalment sits around R5, 455. With a 0.5% rate hike the monthly instalment would increase by R64 and with a further 0.5% increase the instalment would increase by R128 from the original instalment amount.

• This increase in monthly instalments may seem minimal to the consumer however if you add it on to the  monthly increases of fuel, April’s fuel levy increase,  as well as other rising inflationary pressures, the impact of further rate hikes may have a much more serious impact on the SA consumer’s affordability.

2014 Vehicle Sales Prospects:

The factors that will have an impact on the sales of vehicles in 2014 have not changed.

Factors that will inhibit growth include the following:

• Low level of economic growth is expected in 2014, 2.1% for 2014 (Standard Bank Research).
• High level of unemployment (24.1%) is expected to persist.
• Rising inflationary pressures will remain a challenge. Food, fuel, above inflation wage settlements, as well as Exchange Rate fluctuations will pose risks to the inflationary outlook.
• Exchange Rate fluctuations will also have an impact on vehicle pricing. With approximately two-thirds of vehicles sold in RSA being imported (NAAMSA) pricing will be vulnerable to a depreciating Rand.
• The Bureau of Economic Research retail survey shows Retail business confidence decreased by 9 index points to a level of 40 in Quarter 4 of 2013.
• The Replacement Cycle may have reached its peak.

Factors that may assist growth:

• Even with the recent 50 bps increase in the repo rate, the interest rate environment remains favorable for financing of vehicles. However, this is likely to change with the increasing likelihood of upward movement of interest rates in the course of the year.
  • We have seen an increase in new vehicle prices due to the pressure of exchange rate fluctuations. However, prices of vehicles have grown at a lower rate than that of Consumer Price Inflation. New Vehicle Prices have grown by 3.79% for 2013.
    • There is still demand in the second hand market. This bodes well for the new car market as it enables trade-in to be feasible.  2013 experienced a negative growth in used car pricing, ending the year 2.2% down from 2012.
    • The South African vehicle market remains competitive – with South Africans crazy about cars, manufacturers are pushing creative marketing and incentive programmes as they fight for market share.
      • New model introductions, extended warranties, service plans and sales incentive schemes will remain prevalent in a consumer friendly sales environment.
      • The steady growth of the middle class will continue to drive sales growth in the market.

      [Comments on NAAMSA New Vehicle Sales Report – March 2014  – Sydney Soundy – Head of Standard Bank Vehicle and Asset Finance]