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South Africa: Slowdown in Car Sales as Rates Pinch
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Business Day (Johannesburg)
3 July 2008
Posted to the web 3 July 2008
Loyiso Sibali
Johannesburg
SALES of new vehicles in SA declined for the 15th successive month on an annual basis, decreasing 21,9% year on year to 39062 units last month.
The National Association of Automobile Manufacturers of SA (Naamsa) said new vehicle sales had declined by 10956 units compared to new vehicles sold in the corresponding month last year.
Sales also dropped 23,4% in May compared to the previous year's corresponding month.
Naamsa said the new vehicle export industry had continued to perform well and export sales were supporting the operations of vehicle and component producers.
Last month , the industry exported 23191 new vehicles, 78,3% more than the 13004 new cars exported last June .
Nedbank economists said the improved exports had been boosted by a rebound in exports of light commercial vehicles, after two months of decline.
The continued deterioration in demand for passenger, light commercial and medium commercial vehicles was fuelled by rising fuel prices, interest rates and inflation, economists said.
Passenger car sales again saw the biggest drop, falling more than 25%, while the sale of light commercial vehicles, such as pick-up trucks and minivans, declined 18%.
Citigroup economist Jean Francois Mercier said the data reinforced expectations of a further consumer-driven economic slowdown in the months ahead.
Absa Capital's strategy team said the vehicle sales data, together with the durables component of retail sales data, showed just how far the high interest rate environment, together with the National Credit Act, had curtailed discretionary spending.
According to Standard Bank economists, the Reserve Bank's 50 basis-point hike of its benchmark repo rate last month implied that the monthly instalment on an average R120000 vehicle rose by R307 to about R2886. This compared to R2579 when rates were steady at 10,5%.
They added that despite an expected slowdown in growth in household debt accumulation later this year, comparative conditions would be worse than the 1998 scenario because inflation then was 6,9% and household debt was only 60,2%.
This year, inflation was expected to breach 12% while the household debt:income ratio was expected to increase towards the 80% mark , meaning the financial burden on consumers would be more stringent , Standard Bank said.
Absa Capital said declining vehicle sales could translate into a favourable effect on consumer inflation starting in January next year when the weighting of vehicle sales in the consumer price index excluding interest rates on mortgage bonds (CPIX) basket would increase from 5,7% to 12,8%.
Naamsa said new vehicle sales in the domestic market would remain under severe pressure as a result of the cumulative effect of interest rate rises, inflationary pressures, high levels of personal debt and a slowdown in economic activity.
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Economists expect the interest rate to be hiked by 50 basis points next month and for it to remain at that high level for the remainder of the year.
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