Market facing some headwinds, NADA

Load shedding and rising interest rates are starting to put pressure on new vehicle sales, says the National Automobile Dealers’ Association (NADA).

Alex Boavida blue car

NADA vice chairperson, Alex Boavida, says the total new vehicle sales figures for September 2022 continued to run ahead of the corresponding month last year, despite these challenges.

“The numbers were aided by a strong showing from Toyota, which is making immense strides in recovering from flood damage that knocked out its plant in April,” she says.

Boavida says the rise in sales in September was encouraging considering it was achieved in tough trading conditions owing to a variety of factors on top of load shedding and the interest-rate hike, including ongoing stock supply shortage and a stock mix that is not ideal.

“With factories struggling to keep new vehicle production on schedule, delivery times are becoming increasingly difficult to predict, and in turn, dealers are finding it difficult to keep clients interested in specific models,” she says.

Boavida says the drastic increase in load shedding, a 75-basis point rise in the interest rate and ongoing high fuel costs are beginning to have a negative effect on new vehicle sales in South Africa.

She says household costs are increasing owing to extensive load shedding, and energy bills now have to include fuel for generators in tandem with electricity, which is set to rise significantly in price soon.

Boavida says some clients are putting off new vehicle purchases to buy solar panel and battery back-up systems for their homes and businesses.

She says shipping and logistics also remain problematic although they are improving monthly.

“However, as cargo trade normalises, we are faced with shrinking markets and fears of a potential world recession.

“There are also some limitations on local vehicle transport with a shortage of carriers as exports ramp up," she says.

Boavida adds that the demand for used vehicles remains strong and the availability of good used vehicle stock is improving.

She says the 104.6% improvement in the export of built-up vehicles and the substantial increase in rental and fleet units as the industry gears up for the holiday season were also good news.

“These indicators are extremely positive as it means that OEMs [original equipment manufacturers] and importers are delivering more units to the market,” she says.

Aggregate domestic sales for the month of September rose 10.8% year-on-year to 47 786 units while year-to-date the total industry sales at 391 396 units are 13.4% higher than for the first nine months of 2021.

Passenger car sales increased year-on-year by 9.7% last month while light commercial vehicle sales were up 14.9%, medium commercial vehicles 15.3% and heavy truck and bus sales rose 1.8%.

Nedbank’s economic research unit says domestic sales of new vehicles remained relatively firm in September, despite extremely challenging operating conditions characterised by relentless power outages and softer domestic demand.

However, the bank says although total sales increased, the growth rate slowed to 0.9% month-on-month and 10.8% year-on-year from 9.4% month-on-month and 14% year-on-year in August 2022.

“The outcome was slightly weaker than our expectations of 12% year-on-year growth,” it says.

Nedbank referred to naamsa reporting that the car rental industry made a strong positive contribution to sales in the month, accounting for a sizeable 18.9% of September’s sales.

“The ongoing recovery in business and leisure travel off a very low base is providing some counter to the growing pressure on household incomes stemming from higher inflation and rising interest rates,” it says.

Nedbank added that domestic sales growth is likely to slow further during the remainder of this year and next year.

It says regular and disruptive power outages will continue to undermine vehicle production and sales while weaker household finances will also weigh on consumer demand for vehicles.

“Generally higher inflation and the rapid rise in interest rates will gradually erode household incomes and subdue demand for credit.

“Interest rate hikes normally take anywhere between 12 and 18 months to affect demand, suggesting that the slowdown in the passenger and light commercial vehicle markets will more than likely intensify in 2023,” it says.

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