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South Africa: Vehicle Sales Slow As Higher Interest Rates Bite
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Business Day (Johannesburg)
7 May 2008
Posted to the web 7 May 2008
Thabang Mokopanele
Johannesburg
TOUGH economic conditions are adding salt to an already wounded vehicle sales market battling to deal with the effects of higher interest rates.
National Association of Automobile Manufacturers of SA (Naamsa) figures released yesterday showed that interest rates, which have gone up six times since 2006, continued to result in vehicle sales falling at an annual 2,8% to 42359 units last month from 43563 in the same month last year.
"We remain pessimistic about the outlook for the car market this year and next year, as conditions continue to worsen on the consumer landscape," Standard Bank economist Danelee van Dyk said.
The economic factors involved are rising energy, food and fuel costs and negative consumer sentiment and business confidence.
Van Dyk said given that a further interest rate hike was on the cards next month, a visible turnaround in car sales was only expected by 2010. "While it is anticipated that growth in consumer debt will have eased further by next year, as debt accumulation will be stymied by the higher financing burden, and inflation will have moderated, consumers will still be hung-over from the current confluence of negative conditions eroding disposable income."
The rand's weakness, the cost of importing material and parts and the increasing production costs are adding to manufacturers' woes.
However, there is a flickering light at the end of the tunnel with strong investment sentiment and infrastructural spending, boosting sales of vehicles in the medium and heavy truck segments of the industry.
The commercial vehicle market has maintained its upward momentum and last month's sales were 1307 units and 2120 units, for the medium and heavy truck segments respectively.
The market had also recorded an improvement of 198 units, or 17,9%, in the case of medium commercial vehicles, and 547 units, or 34,8%, in the case of heavy trucks and buses -- compared to the corresponding month last year.
During April the industry exported 22550 new vehicles, representing an improvement of 9307 vehicles, or 70,2%, compared to the 13243 vehicles exported during the same month last year.
The industry body said that for the first four months of this year, export sales reflected an impressive year-on-year improvement of 45,5%.
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However, Naamsa projected dim prospects for the remainder of this year, saying that the new domestic car and light commercial vehicle sectors were expected to remain under pressure as a result of tight monetary conditions, rising inflationary pressures, high levels of household debt and a further modest slowdown in economic activity levels.
This is what higher interest rates are supposed to do,make sure you do not have enough money to spend on luxury items,cars are, catch a taxi.
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