Competition between manufacturers plus flexibility in structuring finance agreements buoying vehicle sales
2 September 2013: The South African automotive industry recorded a decline in new vehicle sales for August, showing a 0.3% contraction compared to August 2012. From a year to date perspective the growth rate has receded from 6.9% recorded in July 2013, down to 5.9% for August 2013.
Passenger Vehicle sales are under pressure. Cyril Zhungu, General Manager: Motor Division at WesBank, South Africa’s leading moveable asset-based financial solutions provider, notes that passenger vehicle sales contracted by 3.7% last month. In contrast, the Light Commercial Vehicle (LCV) market is performing better than expected with a growth rate of 5.3% compared to August 2012. From a year to date perspective, the LCV market has grown by 9.5% compared to the same period in 2012.
Zhungu notes that consumer demand seems to have reached a peak. “The rate of applications per day has stagnated at about 5 000 applications during 2013 and has remained flat for the year to date. WesBank data recorded 109 000 applications for the month of August.
In addition, the replacement cycle for new cars has also bottomed at about 35 months on new cars. We expect this to hold firm for a while but our long-term view is that the replacement cycle will move upwards to about 40 months again.”
The average transaction value for new cars has increased significantly by 11.6% compared to August 2012. According to Zhungu the rise in car prices is being negated by client behaviour through structuring their finance agreements favourably, “We have observed a clear trend in consumers optimising the flexibility in the structure of their finance agreements to absorb the price increases. The average contract period is now on 67 months. We have also observed a clear increase in the demand for balloon payments, which has increased by 31% compared to August 2012.”
“WesBank’s view is that while the manufacturers are able to sustain the aggressive marketing activity against a backdrop of increasing car prices, the market should continue to perform at the current levels with marginal growth.”
Zhungu concludes, “As we saw with the WesBank Vehicle sales Confidence Indicator (WVsCI)* for the third quarter of 2013, dealer confidence is also dropping. Industry Growth year to date has dipped below 6%. However, WesBank still believes that if the current sales levels are maintained, the industry should remain in a healthy state.”
*The WesBank Vehicle sales Confidence Indicator polls over 250 new car dealerships throughout South Africa on a quarterly basis