Sydney Soundy – Head of Standard Bank Vehicle Asset Finance reveals and comments on vehicle sales numbers for May

Sales Performance Summary – Total by Market Segment (NAAMSA flash includes Namibia, Lesotho, Swaziland & Botswana):

General Comments on April 2013 NAAMSA sales:

• Year on Year (April 2012 versus April 2013) sales increased by 19.5%, equating to 8,312 vehicles compared to the same time last year. Importantly the average sales per day April 2013 outsold 2012 by 2,122 to 1,937.

• However, the industry experienced a decrease in sales volumes in April 2013 compared to March 2013 (-7.3%). The main contributors to this decrease were Passenger & Light Commercial Vehicles in volumes. Medium Commercial vehicles and Busses both had above 10% decrease in growth Month on Month. Only Heavy Commercial and Extra Heavy Commercial vehicle had positive growth but this was in small volumes.

• With Easter falling in March this year April was set to be up month on month in terms of sales volumes. April 2013 has ranked as the best April since 2010. It was the 17^th best month in the last 40 months. Taking historical trends in to account the month has done relatively well.

General Macro and Industry Comments:

• There has been no revision on annual GDP this month with the MPC estimating growth at 2.7% whilst the Standard Bank Research team has a projection of 2.5% growth.
• Inflation is expected to breach the inflationary target in Q3 2013 at 6.3% and regress in Q4.
• The exchange rate is expected to be around R9.20 to the dollar by mid -year 2013 and end closer to R8.90 by year end according to Standard Bank Research Unit. The exchange rate will impact the vehicle market through VPI and indirectly through the fuel price fluctuations.
• NCR Consumer Credit Report for Q4 of 2012 reported that there has been a 1.4% increase of credit-active consumers to 19.97 million from 19.67 million in the previous quarter.
• Consumers are still under pressure despite a low-interest rate environment, deleveraging of household debt has been minimal, with the household indebtedness ratio having improved to 75.8% in Q4 2012 from 76.2% in Q3 2012.
  • With debt to disposable income levels at 75.8% the South African consumer cannot afford to save. In fact South Africa’s personal savings ratio (personal savings to disposable income) has been in negative territory since mid-2005. Thus this indicates that the consumer uses what little disposable income they have to service their debt costs.

Comments on Vehicle Sales Outlook:

• Vehicle sales volumes may still be boosted by the following factors:
  • The Prime Interest Rate remains at its lowest for over thirty years, and has and will play a major part maintaining the South African consumer’s appetite for debt.
  • The rand has been under pressure against all major currencies, this will have a negative knock-on effect on Vehicle Price Inflation (VPI). However VPI has so far remained below CPI.
    • VPI for Q1 of 2013 for new car prices is at 2.4%. This is up from Q4 of 2012 by 0.2% and up from 2012 annual 2.2%.
    • VPI on Used cars have in contrast decreased Quarter on Quarter. Q1 of 2013 is at -1.4% compared to Q4 of 2012’s 3.6% and 2012’s annual 2.2%.

• The following factors are expected to provide subduing effects on vehicle sales numbers:
  • The expected low GDP growth projected at 2.7% by the Reserve Bank, and 2.5% by Standard Bank Research team.
  • Increases in food, energy and transport costs (including toll fees) will impact on consumer disposable income.
  • Household Debt to Disposal Income remains high at 75.8% (Q4 of 2012).
  • Despite the decrease in fuel prices (73 cents in petrol and 55.6 cents in diesel) for the consumer on Tuesday, 30 April fuel prices remain a major cost for motorists and fleet operators. Fuel prices have risen by 24.4% in petrol (inland) and 16.4% in diesel (inland) since Jan 2012 (Jan 2012 to April 2013). Further, the price of fuel in the country has gone up by 258% and 376% in petrol and diesel respectively since 2001.
  • Carbon Emissions tax increases have come into effect as of April 2013.

Some statistics on Standard Bank related numbers:

• For the period January to Mar 2013 Standard Bank experienced growth of 11% in applications compared to the same period in 2012 and 17% when comparing 2011.
• The average contracted original settlement term per deal is 56 months (59 months for Personal customers, and 53 months for Commercial/Business customers). The actual settlement term per deal is 44 months (44 months for Personal and 43 months for Business Customers).
• Applications with RVs requested represent 14% of all applications.
• Applications with deposits requested represent 32% of all applications.

Other Observations:

• Daily Customer Buying/Financing Trend:

The general buying trends reflect that in the last half of the month an average of about 64% of deals are concluded/financed. A moderate shift occurs from the middle of the month, and then a sharp shift occurring closing towards the end of the month.  The table below illustrates this trend.

This trend differs when compared to the finance application volumes received, where the highest volumes are in week 3 of each month, with week 4 still experiencing high volumes.

This trend is further illustrated when expressing a typical month in a graphical format, where there is a consistent climb, with up ticks at certain times during the month until the end of the month, where the sharp increase is experienced.

Potential explanations for this trend are:

• Debit order date – customers generally get paid from the middle of the month to the end of the month, and thus set their debit orders on, or after their pay day. This gives less of an incentive to conclude the deal at the beginning of the month.
• Sales targets and commission – the need for dealers (and dealer salespeople) to meet their monthly targets drives them to push for closing of the deals before month end, resulting in more sales activity towards the end of the month to meet targets, and for sales people to ensure they earn sufficient commission to cover their monthly income requirements.

Sport Utility Vehicle (SUV) Trends:

The Luxury SUV market (priced above R450 000) has seen significant growth for 4 consecutive years. Brands such as Audi, BMW, Mercedes, Jeep, Land Rover, Lexus, Porsche, Volvo, Toyota and VW make up this category of vehicle.

• The growth and penetration levels experienced in this segment highlights that the value for money, versatility and comfort of SUV’s meets the demand by a SUV loving South African car market.
• The annual penetration into the overall passenger market has gradually grown Year on Year since 2006 with this segment having a penetration of 4.7% in 2012 (Excluding all AMH & AAD figures).
• Since 2010 annual growth for this vehicle segment has risen by 15.7%, 28.9% and 40.6% Year on Year for 2009/10, 2010/11 and 2011/12 respectively. This annual growth has been at higher rates than the passenger market. The passenger market has growth year on year by 27.3%, 19.5% and 9.7% for 2009/10, 2010/11 and 2011/12 respectively (Excluding all AMH & AAD figures).