SA's automotive industry still performing despite weak economy

Despite the doom and gloom sentiment caused by economic issues and geopolitical perceptions, aggregate new vehicle sales increased year-on-year by 10.1% last month, and year-to-date sales to May 2023 are 3.0% higher than for the same period last year.

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However, Mikel Mabasa, CEO of automotive business council, naamsa, said interest rates, geopolitical perceptions and load-shedding were potential deleterious effects on South Africa’s automotive operations.

Mabasa said the automotive industry was facing multiple headwinds, including the recent escalation of interest rates hikes, the depreciation of the currency on the back of geopolitical risk reputation around the Russia-Ukraine war, sectoral supply chain disruptions and producer and consumer inflationary pressures.

“An unprecedented operational environment is now redefining the performance of the automotive industry, with record-high externalities for decades.

“These ongoing negative domestic and global economic activities directly affect the production mechanisms of the industry, and therefore the cost of doing business in South Africa,” he said.

Aggregate industry new-vehicle sales increased significantly by 10.1% last month to 43 060 units from the 39 101 unit sales recorded in May 2022.

Of the total reported Industry sales of 43 060 vehicles, an estimated 90.2% or 38 872 units represent dealer sales, vehicle rental industry sales for an estimated 4.9% or 2 100 units, industry corporate fleets for an estimated 2.7% or 1 164 units and government sales an estimated 2.2% or 924 units.

Sales of new passenger cars increased marginally by 0.1% or 15 units last month to 27 401 units from the 27 386 units sold in May 2022, light commercial vehicle sales, however, increased by a substantial 38.5% to 12 825 units from the 12 781 unit sales in the same period.

Month-on-month passenger car sales increased by 12.5% compared to April 2023 while light commercial vehicles grew by 21.0%.

Medium commercial vehicle sales increased year-on-year by 2.7% to 580 units last month, while heavy truck and bus sales grew by 19.3% to 2 254 units.

Year-to-date domestic vehicle sales to May 2023, at 218 869 units, are 3.0% higher than the 212 488 units sold in the corresponding period in 2022.

Mabasa said the 10th consecutive interest rate hike announced by the SA Reserve Bank pushed the repo rate to a 14-year high of 7.75% and the prime lending rate to 11.25%.

He said the likelihood of further monetary tightening was very high as inflation remains stickier than expected.

Mabasa added that the value of the rand went into a free fall mode to record lows with it weakening inconsistently for the first time with emerging market currencies.

“To top it all, by 5pm on 9 May 2023, South Africa had been in the dark for as long as the entire 2022, with the situation likely to get worse as the winter season intensifies.

“A loadshedding-bound economy will cause irreparable harm to the automotive industry, which has become the successful cornerstone of industrialisation and development in South Africa,” he warned.

Turning to geopolitical issues, Mabasa said the vehicle export performance continues to be affected by the stagflation shocks, amplified by the protracted Russia/Ukraine conflict.

“This has seen GDP growth in some of South Africa’s key export destinations, such as the UK, the US and Europe, moderate sharply compared to 2022 trends.

“Business sentiment is riding a pessimistic tide, with threats on the certainty of South Africa’s future participation in AGOA (African Growth and Opportunity Act) now entering a realm of speculation – an element now requiring a swift response from government to ease speculation,” he said.

However, WesBank said consumer behaviour did not appear impacted by the economic indicators.

WesBank Head of Marketing and Communications, Lebogang Gaoaketse, said market demand as measured by WesBank’s applications for finance displayed double-digit growth although there was one more selling day year-on-year in May 2023.

But Gaoaketse cautioned that the conversion of these applications into actual deals was not taken into account.

“While the level of demand seems contrary to the economic pressures on household budgets, it is reassuring that opportunity remains in the market and that economic activity – however difficult – continues to perform,” he said.

See the full results here: AVAF Infographic naamsa May 2023

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