Several Factors to Impact the Vehicle Sector in 2016

Vehicle Sales and Exports

A total of 48 149 new vehicles were sold in the South African market in February 2016, which were 410 units and 0.8% less than total sales volumes in January. The February sales volumes were down by 4 236 units compared with February last year, resulting in a decline of 8.1% year-on-year (y/y). Year-to-date new vehicle sales were down by 7,6% y/y to 96 708 units. These trends in new vehicle sales are a reflection of challenging economic conditions affecting consumers and the business sector over a wide front.
Of total industry sales of 48 149 units in February, 80.6% represented dealer sales, 12.1% represented sales to the vehicle rental industry, 4.2% of sales were to corporate fleets and 3.1% represented sales to the government.
Passenger car sales came to 32 826 units (68.2% of total vehicle sales) in February, which were 6.1% less than in February last year and 6% down on January sales volumes. Year-to-date passenger car sales are down by 6,1% y/y to 67 755 units.
Commercial vehicle sales dropped by 12.1% y/y in February, with light commercial vehicles sales (27.3% of total vehicle sales) declining by 13.1% y/y to 13 161 units. Light commercial vehicle sales were down by 11% y/y to a total of 25 184 units in the first two months of the year. Total commercial vehicle sales dropped by a cumulative 10,8% y/y to 28 953 units in January and February.
The overall daily sales rate came to 2 293 units in February compared with 2 428 units in January.
New vehicle exports were marginally lower by 1.6% y/y to 29308 units in February, with a significant month-on-month rise of 125.4% from January. However, year-to-date exports were down by 9% y/y to 42 308 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 1.64 at the end of December last year. A total of 25 286 used vehicles were financed in December, with the number of new vehicles financed at 15 465. The total number of vehicles financed in 2015 came to 474 550 (491 569 in 2014), of which 300 101 were used (308 267 used vehicles financed in 2014) and 174 449 were new (183 302 new vehicles financed in 2014), with a used-to-new ratio of 1.72 last year compared with a ratio of 1.68 in 2014.
Comments and statistics on applications received and electronically scored by Absa in February.

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

– Applications received and scored with a 72 month finance term = 90%

– Applications received and scored with balloon payments = 30%

Industry Outlook

New vehicle sales volumes are forecast to be significantly lower in 2016 compared with the almost 618 000 units sold in 2015. The most important factors that will affect new vehicle sales this year include economic growth, interest rates, household and business financial conditions, and levels of confidence. NAAMSA expects passenger car sales to be down by 9% in 2016, with new commercial vehicles sales forecast to be down by between 3% and 5%.
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.
NAAMSA expects new vehicle exports to grow by about 12% to approximately 375 000 units in 2016. Exports will be driven by global economic growth and manufacturers’ export programs. An expected weaker rand exchange rate towards year-end 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 set to face increased financial strain over the short to medium term against the background of macroeconomic trends and a higher net tax burden. As a result, consumers’ spending power and ability to service debt and take up further credit will be negatively affected.
The net effect of the 2016 national Budget is expected to intensify the financial pressure on consumers against the background of limited personal tax relief, an increase in the general fuel levy, increased excise duties on tobacco and alcoholic products, and higher tax rates in respect of capital gains and transfer duty on property towards the upper end of the residential market.
Credit-risk profiles are expected to remain fragile and vulnerable, being a key factor in the accessibility of and the demand for and growth in household credit.
The already low level of consumer confidence is set to remain under downward pressure, with confidence being an important driver of the demand for credit, consumption expenditure, and eventually 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.

Also view:

Vehicle Finance, Car Insurance and Road Safety

Buying and Selling a Vehicle – Informed decisions and the Vehicle Retailer