Absa Commentary: April 2016 NAAMSA Sales Report

Vehicle Sales and Exports

• A total of 40 390 new vehicles sold in the South African market in April, which were 7 126 units and 15% less than total sales volumes of 47 516 units in March. On a year-on-year basis sales volumes were down by 9,2% in April. The continued declining new vehicle sales came on the back of tough economic conditions which have a negative effect on consumers and the business sector. Year-to-date sales volumes were down by 9,7% in the first four months of the year.
• Of total industry new vehicle sales of 40 390 units in April, 91.1% represented dealer sales, 4% represented sales to corporate fleets, 3.1% of sales were to the rental industry and 1.8% represented sales to the government.
• New passenger car sales dropped by 13.2% y/y to 26 077 units in April, which were 14.8% less than the 30 598 units sold in March. Year-to-date new passenger car sales were down by 9.6% y/y to a cumulative total of 124 475 units.
• New commercial vehicle sales dropped marginally by 0,9% y/y to 14 313 units in April, but were down by 15.4% month-on-month (m/m). New light commercial vehicles sales were down by only 0.1% y/y to almost 12 200 units in April, while declining by 15.9% m/m. Year-to-date light commercial vehicle sales were down by 9,6% to just short of 51 900 units
• The overall new vehicle daily sales rate came to 2 020 units in April compared with 2 376 units in March.
• New vehicle exports were sharply higher by 39.2% y/y and 18.8% m/m to 32 856 units in April, which contributed to year-to-date export volumes of almost 103 000 units.

Vehicle Finance

• Vehicles are currently mostly financed over a 72-month period with used vehicles only marginally impacting the average financing term. The main driver of this remains affordability, but it has the downside of an ever-increasing average contract period, which continues to lengthen the vehicle replacement cycle.
• A total of 89 890 vehicles were financed in the first quarter of the year, of which 60 595 were used vehicles and 29 295 were new vehicles. This resulted in a used-to-new ratio of 2.07 over this period.
Industry Outlook
• The forecast is for new vehicle sales to be under pressure in the rest of the year against the background of a poorly performing economy and expected rising vehicle price inflation on the back of a weak exchange rate
• Entry-level passenger cars, new model releases and manufacturer incentives will be the main driving factors of new vehicle sales this year.
• New vehicle exports are forecast to show relatively strong growth this year, which will be he effect global demand and manufacturers’ export programs. Continued rand exchange rate weakness will support vehicle export competitiveness.
• Interest rates are forecast to be hiked further towards year-end as a result of inflationary pressure, with these trends to have a negative effect on the affordability of and the demand for and growth in vehicle finance.
Consumer Outlook
• Consumers are to experience increased financial pressure in view of tough economic conditions. As a result, spending power will be further eroded, with the ability to service debt and take up further credit constrained.
• Consumer credit-risk profiles and financial vulnerability will be key factors regarding credit providers’ risk appetites and lending criteria, which will drive the accessibility of credit.
• Against the background of economic prospects and the outlook for household finances, consumer confidence may decline further from an already low level, which will have a negative impact on the demand for credit, consumption expenditure, and economic growth.

Factors Impacting the Vehicle Sector

• Vehicle prices (exchange rate, taxes, input costs): New vehicle price inflation is set to remain under upward pressure due to expected further rand weakness in 2016-17.
• Household finances (household income, employment, the ratio of household debt to disposable income and consumer credit-risk profiles), business sector performance and consumer and business confidence: Household finances remain finely balanced with high levels of debt and a large percentage of credit-active consumers having impaired credit records. Consumer and business confidence remains low against the background of economic developments.
• Vehicle finance (interest rates, banks’ risk appetite and lending criteria, legislation and regulation): The demand for and affordability and accessibility of vehicle finance, largely driven by interest rate movements, customer credit-risk profiles and consumer and business confidence, will remain important to the performance of vehicle sales.
• Transport costs (fuel prices and maintenance costs): Fuel prices and vehicle maintenance costs drive transport costs and consumer price inflation, impacting consumer and business spending power.
• Economic performance and vehicle demand and supply (global and domestic economic growth, exports and workforce stability): Global and domestic economic growth will drive domestic vehicle sales and exports, which will be supported by manufacturers’ export programs, with labour market trends and developments impacting vehicle production and export volumes. Vehicle export competitiveness will benefit from a depreciating exchange rate.