Johannesburg – 4 April 2018 – Aggregate domestic vehicle sales increased year-on-year (y/y) for the first time in 2018 as more positive sentiment starts to bring consumers back into the new vehicle market. Standard Bank Vehicle and Asset Finance (VAF) says the recent repo rate cut will further encourage consumers to enter the market, although the effect may be muted in the short-term due to inflationary pressures.
Derick De Vries, Head of VAF & Fleet Management at Standard Bank says higher sales in March could also be attributed to the fact that consumers and fleet operators took advantage of buying at lower costs before the VAT increase to 15% kicked in from April 1. Increases in ad valorem tax also encouraged buyers of luxury vehicles to beat the month end deadline.
The South African Reserve Bank’s Monetary Policy Committee cut the repo rate by 25 basis points in March, while Moody’s rating agency kept SA’s sovereign credit rating unchanged at the lowest investment grade, in line with the bank’s forecast. The change in the rating outlook to stable (from negative) is also positive for stimulating economic growth.
“GDP growth is forecast to improve from 1.3% in 2017 to 1.8% in 2018 according to our estimates. The main driver for the growth is accelerated consumer spending growth underpinned by real wage growth. The average inflation rate, meanwhile, is expected to decrease from 5.3% in 2017 to 5.0% in 2018, but this has been adjusted upwards following the various tax hikes announced in the Budget Speech,” says De Vries.
Standard Bank expects average petrol prices to increase by 9% in 2018 relative to 2017. The increase in fuel levies, which come into effect in April 2018, as well as the slight depreciation of the rand, halted the run of consecutive fuel price decreases at the start of 2018.
National Association of Automobile Manufacturers of South Africa (Naamsa) data for March 2018 shows that the total vehicle market increased by 1.1% year-on-year (y/y) in March 2018 and by 6.4% from February 2018, but sales are down 4.1% year-to-date.
Notably, the March 2018 export number was affected by the BMW switchover in production from the 3-Series to the X3. Vehicle exports decreased 8.1% y/y and 0.3% month-on-month (m/m), according to the latest data.
“However, the global economy is expected to remain robust, which should offer support for vehicle exports,” says De Vries.
On the local front, the market still prefers used cars to new cars as consumers seek value for money. Demand for used vehicles remains strong with the ratio of new to used at about 1 to 2, but this ratio is decreasing marginally every month, says Standard Bank Vehicle and Asset Finance.
“Demand for credit has started to pick up and we expect that it will gain some momentum over the course of 2018,” says De Vries.
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