Expected growth hiding real downturns

South Africa’s 2021 new vehicle sales will show double-digit growth off 2020’s unforeseen low base but will also continue to show a decline in real economic terms says WesBank, the country’s leading vehicle, and asset finance provider. WesBank CEO Chris de Kock is set to deliver the bank’s view of the market and its annual sales forecast at the virtual 2021 Cars.co.za Consumer Awards this evening.

De Kock said two distinct considerations need to be separated in understanding what the new vehicle market may do this year: what sales are expected to do compared to 2020, which will provide a skewed representation of market activity; and how the market will effectively perform in a normalised economic outlook, which will provide a more accurate depiction of activity.

“It is not difficult to imagine that the market will perform better than 2020,” said de Kock. “But the industry cannot find confidence in this theoretical growth at the risk of losing sight of the very real impacts the weak South African economic environment will continue to have on the South African motor industry.”

Given the economic and socio-political challenges facing the country – both as a result of COVID-19 and those trends already being experienced prior to 2020 – it is likely that both business and consumer confidence will remain subdued.

WesBank’s prediction for the 2020 market prior to the pandemic saw a market down 3.5% to 518,000 units. The unprecedented reality was a 29.1% slump for the year to end on 380,449 units, heavily impacted of course by Covid. “If we normalise the sales number to exclude the effects of Covid, we think we were slightly light on that outcome. If we look at the performance in the first two months of 2020 and impute that for the whole year, and combine it with the actual economic degradation, we think we would have seen a market that would have been down 5.7% or a theoretical market of 506,056 sales,” said de Kock.

Based on this normalised baseline, WesBank predicts a continued worsening economic impact on new vehicle sales during 2021, which will result in a market total of 426,000 units, down 15.8%. In actual terms, but relative to 2020 sales, this would represent a growth of 12%.

“Looking at these figures in the context of annual sales since 2000, one would have to go back to 2009/10 to find the last time we had figures similar to these, showing how new car sales have been negatively impacted by the slowdown in the SA economy,” said de Kock.

De Kock emphasised that many of the shocks experienced at the onset of the pandemic were not necessarily new experiences. “Many of the economic impacts exacerbated by the pandemic were previously experienced in 1998, 2001 and 2008 when global growth collapsed and commodity prices and exchange rates fell in a global recession,” he said. “But domestic supply and demand will continue to be a headwind as the market slowly recovers.”

“The buydown trend where customers are seeking to reduce their monthly installment by buying a more affordable vehicle continues to be a reality for many consumers,” said de Kock. “The evidence of this can be seen in the market growth of the new car segment that offers lower-priced vehicles with customers willing to substitute high profile brands for more practical and affordable options.”

The used-car market has also been exceptionally strong in the last six months, driven by customers seeking to downscale their vehicle-related costs. “The substantial shift towards the used-car market is being driven mostly by the buydown effect, but also due to an increase in new car vehicle prices averaging close to double-digit in the past year, and stock shortages due to COVID-19,” concluded de Kock.

Viewers can watch the announcement of all 13 category winners during the 2021 Cars.co.za Consumer Awards live broadcast, taking place on 15 February at 19:00 on DStv SuperSport channel 215. An edited version of the awards evening will be screened on 20 February at 21:30 on 1 Magic on DStv channel 103. Consumers can also watch the awards evening unfold by logging on to one of the following social media platforms: http://bit.ly/WatchCarsAwards2021,https://www.instagram.com/carssouthafrica/ or Twitter – @CarsSouthAfrica.