Pent-up demand for new vehicles as sales remain under pressure

Motor vehicle retailers in South Africa are witnessing strong evidence of pent-up demand for new vehicles but many consumers are adopting a "wait-and-see" approach to their purchasing decisions, says the National Automobile Dealers’ Association (Nada).

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Brandon Cohen, the chairperson of Nada, said this caution is driven by the rising cost of living, which is putting pressure on the finances of private buyers, while the economic slowdown is dissuading businesses from replacing their vehicle fleets at this time.

However, Cohen said the new vehicle market is showing resilience in the face of these challenging conditions, with year-to-date total new vehicle sales reaching an impressive 401 912 units by last month to maintain a 2.5% lead over September 2022 when a total of 391 500 units were sold.

"Sales remain under pressure, and September was generally a challenging trading month, although there were some sparks of positivity.

"Applications to financial institutions for financing were slightly up, as were approvals, as consumers test the waters regarding their creditworthiness for a loan," he said.

Total new vehicle sales in September 2023 decreased by 4.1% to 46 021 units compared to the corresponding month in 2022.

Motor retailers accounted for 80.7% of new vehicle sales last month.

Cohen said to stimulate buying activity, original equipment manufacturers (OEMs), distributors and importers have begun offering a wide range of incentives and discounts on vehicles, from luxury to budget cars, and banks are introducing innovative finance schemes.

“The market currently offers favourable opportunities for buyers seeking a good deal.

"Chinese and Asian brands are gaining momentum in several market segments, as are 'buy-down' derivatives of popular models.

“The used vehicle market is gradually stabilising as inventory prices have adjusted appropriately," he said.

Absa Vehicle & Asset Finance head of strategy and business analytics, Henry Botha, said the prospects for light new vehicle sales this year were difficult to assess.

However, Botha believed that with interest rates now stable, light vehicle sales were more likely to be on a flat line going forward rather than declining further or recovering until there is a decline in interest rates and positive sentiment from the Absa purchasing managers’ index (PMI).

Conditions in South Africa’s manufacturing sector deteriorated at the end of the third quarter, with the seasonally adjusted Absa PMI declining by 4.3 points in September 2023 to 45.4 to remain below the neutral 50-point mark.

Lebo Gaoaketse, head of marketing and communication at WesBank, said uncertainty seems to be getting the better of consumers and business as new vehicle sales in September 2023 registered their second consecutive month of year-on-year declines.

Gaoaketse said last month’s sales showed the biggest decline in market performance year-on-year since December 2021 but stressed it was the signs of the trend that were concerning, not the outright numbers.

“While the cold data shows two months of negative growth, a market of 46 000 units is in line with volumes during 2019.

“This indicates a continued resilience and sustained slow recovery as experienced and predicted in the aftermath of the pandemic.

“While there is no doubt that the market has major headwinds to overcome, new vehicle sales continue to defy the odds,” he said.

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