Naamsa CEO Mike Mabasa said on Monday that new-vehicle sales are linked to the strength of the economy, and expectations are for the domestic new-vehicle market to remain under pressure for the balance of this year.

“The country’s economy remains in a fragile situation while business and consumer sentiment continues to be heavily depressed.

“Since new vehicle sales are linked to the strength of the economy, expectations are for the domestic new-vehicle market to drop back to the levels of two decades ago in 2020,” he said in Naamsa’s quarterly review of business conditions in the new motor vehicle manufacturing industry and automotive sector, which was released on Monday.

Mabasa added that, as expected and in line with the country’s gradual easing of most of its COVID-19 lockdown restrictions during the quarter, the domestic vehicle manufacturing sector improved steadily compared to the previous quarter when the entire automotive industry temporarily suspended production and sales.

However, Mabasa stressed that business conditions remain far from normal during the third quarter as the new-vehicle market still faced severe challenges of slow demand, rand exchange rate volatility and negative sentiment in the market.

“Although the current low interest rates, coupled with low inflation, could be regarded as a building block to stimulate the economy, an important avenue for government to support this key coronavirus-hit sector of the economy is to address the illegal grey imports as well as to reduce taxes on new-vehicle purchases to stimulate new vehicle sales,” he said.

The quarterly review contained a new Naamsa confidence index, which anonymously canvassed the opinions of each of the CEOs of the seven automotive original equipment manufacturers (OEMs) in South Africa.

Mabasa said the index is an indicator of current and future developments in the domestic automotive industry.

He said despite the gradual relaxation of most of the country’s COVID-19 restrictions during the third quarter of 2020, the Naamsa CEOs generally regarded prevailing domestic automotive industry business conditions during the quarter “as unsatisfactory”.

The sentiment expressed by the Naamsa CEOs relating to the automotive business conditions over the next six months, by and large remains pessimistic, with 47.0% of Naamsa CEOs believing domestic new-vehicle sales will be down compared to the prior period, 1.7% anticipating that sales will be the same and 35.3% expecting sales will be higher than the prior period.

Mabasa said the uncertainty about the impact and extent of COVID-19 persists as an ongoing concern and “it remains imperative for automotive companies to adapt to the new operating and trading environment going forward”.

“Even with an anticipated rebound of the economy and new-vehicle sales in 2021, the growth outlook remains weak, and the next six to 12 months will be a defining time for many automotive businesses in the country,” he said.

Naamsa said third quarter 2020 aggregate industry new car sales declined by a massive 33.6% or 30 748 units to 60 832 units from the 91 580 units sold during the corresponding quarter of 2019.

It is projecting that the total local car market will slump by 29.6% or 105 378 vehicles in 2020 to 250 000 units from the 355 378 vehicles sold in 2019. However, the association is projecting that the total local car market will recover and grow by 18% or 45 000 units to 295 000 vehicles in 2021.