Confidence in sales activity for new cars among South Africa’s automotive dealers declined dramatically during the third quarter of 2013. This is according to results from the latest WesBank Vehicle sales Confidence Indicator (WVsCI)* for the third quarter of 2013, which showed that dealer confidence declined the most in one single movement since the Indicator was launched in September 2007, dropping by 0.7% from 6.3 to 5.6.
Chris De Kock, Executive Head of Sales and Marketing at WesBank, says that at the beginning of the year, WesBank predicted that 2013 would return new vehicle sales growth of 2.4%, in line with the GDP expectations for South Africa.
“This was in contrast to the other players in the industry, who were significantly more bullish with their predictions. However, it is unnatural for one specific sector in the economy to consistently outperform the GDP growth rate for an extended period of time, as new vehicle sales have done for the past four years. As we predicted, the market is now beginning to normalise,” says De Kock.
“We believe that 2013’s new vehicle sales have been in a supply market, driven by proactive marketing activity by the Original Equipment Manufacturers (OEMs) and dealers, rather than pure demand from consumers. Dealer confidence has, for the first time, come back in line with confidence levels last seen before the 2008 crash and subsequent recovery, when the market was in a normal cycle.
“Looking forward, the recent poor performance of the Rand will cause margins to come under severe pressure to the extent that once the stock levels that have been built up – purchased before the weakening of the Rand – are depleted, newly acquired stock will be priced higher, and this increase will subsequently be passed onto the consumer.
“We are already observing this trend in WesBank’s book data, with the average transaction value of new cars increasing by 11.3% compared to July 2012, whereas headline CPI has been less than 6% during this period.”
De Kock predicts that the value of the trade-in assistance, as well as incentives and discounts offered, will decrease overall and will ultimately result in a softening in new vehicle sales towards the end of this year. In addition, the increased supply of used vehicles into the market as a direct result of the higher sales volumes of the past four years will drive trade-in values lower, which will also make it more difficult for customers and dealers to replace vehicles financed over extended periods (72 months).
The dealers surveyed indicated that they are concerned about the impact of the increasing price of fuel on consumers’ already stressed household budgets. Fuel now makes up a significantly bigger portion of the client monthly mobility expense. According to the WesBank Mobility Calculator**, if one buys an entry level car and travels an average of 2 500km per month, fuel will make up +-37% of the monthly mobility expense, while the instalment of the car will contribute +- 43%.
Dealers also raised concern over the general state of the economy, citing that sluggish economic growth will impact on car sales. “Certainly the dealers are reporting a decrease in foot traffic. There seems to be far fewer new customers entering into the car market and the majority of sales can be contributed to existing customers changing their cars. We now see that the apparent dealer confidence of the first few months of this year, as reflected in the first Indicator figures of 2013, was optimistic. There seems to be a greater awareness that new vehicle sales cannot outgrow the GDP for an extended period of time”, says De Kock.
Used car market
Contrary to the decline in confidence levels in the new car market, dealers who were surveyed noted that activity in the used car market is on the rise. De Kock says, “WesBank’s used:new ratio is showing a slight shifting of the trend towards used cars.”
De Kock adds, “Used car prices are currently in a state of deflation while new car prices are on the rise. This widening price gap between new cars versus used cars is resulting in customers finding better value in the used car market; however, a lot is also riding on the future direction of the Rand.”
In conclusion, he says, “WesBank’s outlook for the remainder of 2013 is that the used car market will continue to gain momentum and perform strongly toward the end of the year, while the growth rate of new vehicle sales should moderate and fall in line with the expected GDP growth rate. It’s important to note that the market continues to grow off the high base that has been established over the past few years, which is a positive situation.”
*The WesBank Vehicle sales Confidence Indicator (WVsCI) polls over 250 new car dealerships throughout South Africa on issues such as current and expected sales activity levels, as well as factors affecting purchasing decisions amongst buyers.
With over 40 years of experience WesBank has become the leader in asset-based finance solutions in South Africa. The company is focused on providing quality asset finance and fleet management solutions for a number of market sectors. WesBank’s asset finance portfolio includes Aviation, Agriculture, Commercial and Company Vehicles, Plant and Office Equipment, Public Sector and Franchise finance solutions. Visit www.wesbank.co.za for more information.