Industry not out of woods yet - TransUnion

Despite the latest indicators for the second quarter of 2021 suggesting an uptick in the local car market, the combined effects of the COVID-19 third wave lockdowns and civil unrest could hit the South African automotive industry hard in coming months, TransUnion has warned.

stock image vehicles parked - Ryan Searle

The leading global information and insights company says total financial agreement volumes in the passenger car market increased substantially year-on-year in the second quarter of 2020, rising by 64% compared to the lockdown-affected corresponding quarter in 2020 when the local automotive industry did not register any sales in the month of April because of the hard lockdown regulations.

However, Kriben Reddy, vice president of auto information solutions for TransUnion Africa, says these “green shoots” could be wiped out by the lockdown Level 4 regulations and civil unrest in July this year, which severely disrupted motor manufacturing operations and supply chains.

“Where 2020’s Level 5 lockdowns created a demand issue in the market, the combination of the 2021 Level 4 lockdowns and civil unrest has created both demand and supply issues, with motor manufacturers suspending operations and supply chains coming to a halt.

“The knock-on effects could be significant: if manufacturers aren’t building, selling and exporting cars, they need fewer employees, which leads to greater unemployment and a major setback for an industry that contributes 6.7% to GDP,” he says.

Reddy added that the lockdown regulations and civil unrest, coupled with the COVID-19 pandemic, are still impacting the finances of most households and this was clearly reflected in the state of the local market.

This, Reddy says, contributed to:

  • Used vehicle finance deals increasing by 70% in the second quarter of 2021 as demand for quality used stock surged, resulting in used vehicle price increases rising sharply to 4.9% in the second quarter of 2021 from 1.6% in the corresponding quarter a year ago.
  • The used-to-new vehicle ratio continued to increase to 2.67 used vehicles financed for every new vehicle financed in the second quarter of 2020.
  • The percentage of demonstration models financed declined to 4% in the second quarter of 2021 from 6% in the first quarter as consumers opted for older vehicles owing to increased pressure on disposable income.

“Overall, the market has shown signs of recovery from last year, but new obstacles await.

“The next six months will be interesting for the automotive sector as the effects of consumer uncertainty and disrupted supply chains will inevitably delay purchases, which will cause dealers to rethink their approaches and seek alternative streams of income,” he says.

This pessimistic outlook for the automotive industry is not shared by the chief executives of member companies of automotive business council Naamsa.

The vast majority of the automotive chief executives are extremely positive that the automotive industry’s key performance indicators will continue to improve over the next six months, with 93.3% of CEOs believing that generally new vehicle business conditions would improve in the next six months while only 6.7% of CEOs expected conditions to deteriorate in this period.

In addition, 86.7% of the CEOs are anticipating an increase in new vehicle sales in the next six months while 17.6% are expecting a decline in sales in this period.

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