The National Association of Automobile Manufacturers of South Africa (Naamsa) has published its new vehicle statistics for May showing a slight uptick in sales after dealerships resumed trading.

New vehicle sales saw a substantial decline of 27,496 units or 68% from the 40,428 vehicles sold in May last year compared to the aggregate domestic sales of 12,932 units in May 2020.

However, Naamsa stressed that this is a noteworthy improvement from the April 2020 performance which saw a record drop of 98.4% in April, following a total lockdown across the country, to prevent the spread of Covid-19.

A total of 12,932 vehicles were sold, including just 9,019 were passenger cars.

Of the 12,092 passenger car and LCV sales, 10,606 units (87.7%) were sold through the dealer channel. Government sales accounted for 892 units (7.3%) across these segments, providing some welcome stimulus.

Naamsa said that these vehicle sales point to persistent demand weakness due to the impact of the Covid-19 pandemic as consumer and business sentiment remain severely depressed.

“New vehicle sales are generally linked to the strength of the economy and the anticipated extent of the negative annualised GDP growth in the country therefore does not bode well for the industry over the medium term,” Naamsa said.

The group noted that under normal market conditions, positive indicators such as sharp petrol price decreases, substantial interest rate drops, below-inflation vehicle price increases, dealer incentives and low inflation would support the new vehicle market.

“However, how far these dynamics will move consumers and businesses into new vehicle purchases over the balance of the year remains unclear,” it said.

It said that the outlook for the industry will only become clear once the entire motor industry is fully operational and prepares itself for the ‘new normal’.

New normal

WesBank warned that the industry should expect to face reduced levels of activity for the remainder of the year. “While we were reassured by the levels of demand from consumers and business judged by volumes of applications for finance during May, we shouldn’t expect sales to return to any form of normality for the remainder of the year,” said Lebogang Gaoaketse, head of marketing and communication at WesBank.

The lender said that applications volumes across new and used vehicles were between 65% and 70% of the levels experienced during May 2019.

“Trading conditions from May last year until February this year were reasonably consistent and representative of normal trading conditions before the country entered Alert Level 5 lockdown during March,” said Gaoaketse. “The industry’s ability to actually trade during May was also impacted by practical considerations of supporting administration as well as the actual appetite to conclude a deal in this environment.”

WesBank data indicates an increase in demand for used cars in terms of vehicle applications, supported by a larger than usual increase in the deal size of those used car finance agreements. “This supports some forecast analysis of a trend for consumers to buy down into the used car market in order to reduce the size of their car repayments and mobility budgets,” said Gaoaketse.

He said that industry will be hoping that demand will return as dealers fight for survival. A further reduction in the interest rate has provided a 2.5% relief for consumers and businesses since lockdown commenced, which should provide some level of assistance for indebted customers, while providing stimulus for new deals.

“With a full month of sales ahead and more freedom within Alert Level 3 regulations, we will begin to understand what the new normal level of activity will be in the new vehicle market.”

Reduced demand 

While the drop in demand will be acutely felt in the sale of passenger vehicles and exports, the impact of the coronavirus will also be felt in other areas, Nedbank economists said in a research note.

“Demand by the rental industry will be hurt by restrictions on business and leisure travel, while export volumes will be contained by sharply lower domestic production as well as lower demand from South Africa’s major trading partners: Europe and Asia,” it said.

“Consumer incomes and corporate earnings will be dampened by job losses and weak demand.  The Reserve Bank’s 275-basis point cut in interest rates is (also) unlikely to support demand significantly.”

This is reflected by recent data from TransUnion which shows that the South African car market saw a significant decline in the number of new and used cars financed in Q1 2020 as the market began to feel the effects of the Covid-19 pandemic.

The number of vehicles financed in Q1 2020 was 12% lower than the same period last year, with the month of March seeing a massive year-on-year decline of 35% for new vehicles and 31% for used vehicles.

This is despite new vehicle price increases staying under inflation for more than two years, the credit reporting agency said.

Kriben Reddy, vice president of auto information solutions for TransUnion Africa, said the Q1 VPI report painted a gloomy picture for the automotive industry for 2020.

With South Africa already in a recession at the end of 2019, pre-pandemic forecasts were that the car market would decline by between 3 and 5%, but the outbreak of Covid-19 could see new vehicle sales for 2020 fall even further.

“The positive indicators of petrol price decreases, interest rate drops, below-inflation vehicle price increases, dealer incentives and low inflation could not move consumers into new vehicle purchases in Q1.

“Consumers are currently uncertain on what the future holds through the current lockdown, with unemployment rate increases, negative exchange rate impact, negative annualised GDP growth rate, and Moody’s and Fitch’s rating downgrade all putting pressure on disposable income.

“This translates to low consumer confidence, which will cause consumers to hold off on big purchases,” said Reddy.

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