Several factors combine to add downward pressure on vehicle sales in SA says ABSA

Vehicle Sales and Exports

A total of 51 256 new vehicles were sold in the South African market in November 2015, which were 2 996 units and 5.5% less than total sales volumes in October. Sales were marginally higher by 201 units in November from the corresponding month last year, resulting in a slight increase of 0.4% year-on-year (y/y). Year-to-date sales were down by 4.1% to almost 569 000 units compared with the first eleven months of last year.
Of total industry sales of 51 256 units in October, 85% represented dealer sales, 8.1% represented sales to the vehicle rental industry, 3.9% represented sales to the government and 3% of sales were to corporate fleets.
Passenger car sales amounted to 33 038 units (64.5% of total vehicle sales) in November, which were 8.8% less than in November last year and 0.6% less than in October this year. Commercial vehicle sales were up by 2.3% y/y in November, with light commercial vehicles sales (29.7% of total vehicle sales) rising by 1.1% y/y and 0.5% month-on-month (m/m) to 15 242 units.
The overall daily sales rate was only slightly lower at 2 441 units in November from 2 466 units in October.
New vehicle exports showed a marginal improvement of 0.2% y/y and 1.4% m/m to a total of 28 112 units in November. Year-to-date export volumes were up by 24% y/y to a total of more than 316 000 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.
The ratio of used to new cars financed was 1.76 at the end of October. A total of 24 064 used vehicles were financed in October, with the number of new vehicles financed at 13 653. The total number of vehicles financed in the first ten months of the year came to 384 397, of which 244 678 were used and 139 719 were new, with a used-to-new ratio of 1.75 over this period compared with a ratio of 1.68 in January to October last year.
Comments and statistics on applications received and electronically scored by Absa in November:

– We experienced an increase in the number of applications received and an increase in the approval rate.

– Applications received and scored with a 72 month finance term = 91%

– Applications received and scored with balloon payments = 30%

Industry Outlook

In view of contracting new vehicle sales in the eleven month up to November, full-year sales volumes are forecast to be down compared with the more than 644 000 units sold in 2014. Some of the major factors driving vehicle sales include economic growth, interest rates, household and business financial conditions, and levels of confidence.
Entry-level passenger cars, new model releases and manufacturer incentives will continue to be the main contributors to new vehicle sales volumes for the rest of the year.
New vehicle exports are set to grow by more than 20% in 2015, with a further improvement expected in 2016. Exports are driven by global economic growth and manufacturers’ export programs. An expected weaker rand exchange rate towards year-end and in 2016 will give further support to vehicle export competitiveness.
As a result of inflationary pressures, interest rates are forecast to rise further over the next 12-18 months, which will affect the affordability of and the demand for and growth in vehicle finance.

Consumer Outlook

Consumers are expected to face increased financial strain in 2016 and 2017 on the back of rising inflation and interest rates. Credit-risk profiles are to stay under pressure and will o remain a key factor in the accessibility of and the demand for and growth in credit, including vehicle finance. Access to credit will be an important factor in the vehicle market in view of a persistent severe lack of savings, together with the aspect of consumer confidence.

Consumers continue to struggle in obtaining and affording credit for higher-priced vehicles, with the demand for favourably priced entry-level vehicles and good-quality used vehicles remaining strong.

Factors Impacting the Vehicle Sector

Vehicle prices (exchange rate, taxes, input costs): New vehicle price inflation are to remain under upward pressure due to expected further rand weakness towards the end of the year and in 2016-17.
Household finances (household income, employment, inflation, 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 debt levels still high and the percentage of credit-active consumers having impaired credit records remaining on a gradual rising trend. 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.

Issued by:

Wessel Steffens

Head: Absa Vehicle and Asset Finance