Roger Houghton
25 July 2008
Johannesburg — MANY South African motorists are drowning in debt and having their cars repossessed as they did not have a financial "cushion" in their monthly financial budget planning, according to the sales and marketing director of Wesbank, Chris de Kock, who addressed a media briefing on his company's Vehicle Sales Confidence Indicator last week.
The amount of debt to monthly disposable income had soared to almost 80%, from a recent low of about 40% in 2003. De Kock said that many of those people now under financial pressure were comparative newcomers to making major credit purchases, such as buying a car and they had extended themselves when making the purchase during a period of relatively "cheap" credit.
As the price of petrol had rocketed, interest and inflation rates had increased, along with food prices, and purchasers were no longer able to make scheduled monthly payments. Many of these people who are now deeply in debt have not seen an economic downturn of the scale experienced currently, as the previous one had been about 10 years ago.
Although Wesbank - and other financial institutions - used repossession as a last resort the number of vehicles being taken back from the private sector has climbed to an estimated 6000 a month. Wesbank, which has a share of about 35% of the vehicle financing "book" in SA, says its current six-month moving average for repossessions is 1806 vehicles.
These repossessed vehicles are sold mainly at auctions, where 80% of the buyers are from the motor trade. The oversupply of used cars means prices obtained on auction are depressed and these 5000-6000 "repos" monthly are increasing stock levels at used car dealers.
"We don't expect the repossession numbers, as a percentage of our 'book', to reach the level we experienced in 1998, but it is still a worrying situation," said De Kock. He said many of the people having their cars repossessed had committed to repayment periods longer than the 48 months that had been the norm until the introduction of the National Credit Act (NCA) in June last year.
The Wesbank sales and marketing chief said that 31% of new applications for finance were now taking repayment periods of 60 months or more, whereas up to June last year the maximum permitted period was 60 months and the bank had no loans running longer than this period before the introduction of the NCA.
Finance houses such as Wesbank ask their customers to contact them as soon as they see they are having trouble meeting their monthly vehicle repayments so an attempt can be made to alleviate the situation. Methods used are to extend the period - which is not possible when the period is already as long as 72 months - as well as suggesting they trade down to a cheaper car or Wesbank allows them to skip a couple of payments while they restructure their finances allowing them to catch up.
De Kock says there is a marked drop in the number of applications being made for vehicle finance. Wesbank uses an index where applications in June 2006 were 100. This went as high as 110 in March last year, shortly before the introduction of the NCA. It is now down to an index of only 90.
The media representatives were also told how the loan amortisation "tipping point" had extended, with the break-even point on a 48-month repayment being at 31 months and for a 72-month period it was 57 months before the value of the car would cover the outstanding balance.
De Kock said that due to the fact that Wesbank financed about 65% of SA's motor dealers in terms of their wholesale stockholding they were very aware that oversupply was putting pressure on new car dealers as well as those selling pre-owned vehicles. This resulted in shrinking margins and made some of these businesses unprofitable.
He said that franchised dealers were fortunate to have good sales in terms of parts and service, with a significantly bigger vehicle parc, to try and balance the books.
De Kock said he did not expect many new car dealers to go out of business; although some may downscale or consolidate with other dealerships in the group during the current economic downturn. However, he thought there would be quite a few casualties among the 5000 used car outlets in the country.
Wesbank Vehicle Sales Confidence Indicator had shown a significant downturn in the second quarter of this year, going down to an index of 4.7 (out of 10), compared with 5.1 at the end of March this year and 5.4 at the end of last year.
Looking ahead, the group surveyed nationally - vehicle sales and insurance people at individual dealerships and groups - saw the index rising to 6.0 in 12 months' time, after increases to 4.9 and 5.1 in the next three-and six-month periods respectively.
In terms of car pricing, Wesbank had built in an average of 7% for this year and it expected a further interest rate hike of 0,5% before the end of the year. It only saw the possibility of an interest rate decrease towards the end of next year.
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