New car sales in August stuttered in the face of rising costs, the prospect of huge petrol price hikes for September and the generally poor economic conditions – falling 6,7% compared to the same month last year.

On a positive note, however, light commercial vehicle sales rose by 2,7%, 0,3% for medium commercial vehicles and a solid 10,4% for heavy commercials.

naamsa | The Automotive Business Council said the weak new vehicle sales performance underlines the ongoing stressed business and consumer environment in the country given that negative economic considerations still greatly outweigh positive ones.

“August’s negative growth shouldn’t dismay completely, however,” says Lebo Gaoaketse, Head of Marketing and Communication at WesBank. “Although August sales experienced their biggest decline in 21 months, this volume is still 5,2% ahead of July sales. In addition, August 2022 sales were amongst the best-performing sales months last year.”

Brandon Cohen, National Chairperson of the National Automobile Dealers’ Association (NADA), says: "The resilience of the South African retail motor industry in 2023 continues to astound us, but we knew there had to be a tipping point, and this is what happened in August."

Interest rates represent the most significant obstacle to vehicle sales presently. Not only does it strain individuals with existing financial commitments, resulting in higher debt instalments, but each increase in rates also changes the affordability model for consumers in terms of the maximum Rand value for which they can secure approval for a loan at a financial institution.

A Perfect Storm

"When we factor in new car pricing and the negative impact of a weak Rand, we witness a perfect storm of reduced affordability in a market with fewer and fewer cars available in various price brackets," says Cohen.

“Inflation has dropped to 4,7%, well within the South African Reserve Bank’s target range of 3% to 6%. If this trend continues, we may have reached the peak of the rate cycle, or at least there might be no further increases. There is hope that interest rates will decrease, potentially as early as November, if economic data permits; otherwise, in the first quarter of 2024.”

Aggregate domestic new vehicle sales in August 2023, at 45,679 units reflected a decline of 1 476 units, or a fall of 3,1%, from the 47 155 vehicles sold in August 2022. Export sales recorded an increase of 10 405 units, or 33,5%, to 41 462 units in August 2023 compared to the 31 057 vehicles exported in August 2022.

The August 2023 new passenger car market at 28,951 units registered a decline of 2 064 cars, or a loss of 6,7%, compared to August 2022. The car rental industry supported the new passenger car market during the month and accounted for a sound 16,2% of sales in August 2023.

“The weak performance of the passenger car market reflected the impact of rising costs of living and lower disposable income on consumer sentiment and the ability to be active in the new vehicle market. Affordability along with delayed replacement cycles appear to be driving new vehicle sales,” says naamsa.

“On the positive side, the significantly less daytime loadshedding since June 2023, interest rates that were put on hold in July 2023 for the first time since November 2021 and inflation now firmly falling within the 3% - 6% target band, have been providing some relief for consumers.

Energy and Logistical Constraints

“However, energy and logistical constraints remain binding on the domestic economic growth outlook, limiting economic activity and increasing costs. Although the SA Reserve Bank has slightly increased its forecast for South Africa’s GDP growth from 0,3% to 0,4% for 2023, the medium-term outlook for business conditions in the new vehicle market continue to reflect subdued demand for high-priced items such as vehicles, which correlates with a stagnating domestic economy.”

 “August sales are a mixed result, which should be viewed with caution,” says Gaoaketse. “While its performance remains relatively strong in real terms, there is no room for complacency in a market faced with ongoing challenges.”

“Fuel price increases linked to the Rand continue to be an ongoing concern and, with the Northern Hemisphere exiting summer, there may be additional price pressure. We also hold hope that an expanded BRICS alliance might generate some positivity in this area. Additionally, property and utilities rate hikes at the municipal level are not helping the situation,” adds Cohen.

Colin Windell – proudly ALLTHINGSMOTORING