South African new vehicle sales declined by 28,3% in November compared to the same month last year, in another sign that high interest rates are taking their toll on consumers.
The National Association of Automobile Manufacturers (Naamsa) said on Tuesday new sales fell to 34 176 units in November, with passenger car sales alone tumbling 33,6% over the previous year, the worst monthly new car performance in the last five years.
Including sales from Associated Motor Holdings — which reports separately — total sales fell to 36 638 vehicles in November from 52 366 last year, and were down 11,2% from October.
The vehicle figures are the latest in a slew of data over the last two weeks pointing to deteriorating economic conditions due to slowing global growth and cooling domestic spending, on the back of five percentage points worth of interest rate hikes since June 2006.
Markets and some analysts are expecting a rate cut next week.
”Sales in all segments of the South African new vehicle market had weakened significantly, suggesting that conditions in the South African economy had continued to deteriorate rapidly,” Naamsa said in a statement.
”The high interest rate environment, the negative wealth effect as a result of falling house prices and asset values, sharp falls in business confidence and consumer sentiment [are] expected to continue to exert further pressure on domestic sales.”
Even if the Reserve Bank reduced interest rates in coming months, trading conditions in the domestic market were only expected to show an improvement from the second half of 2009 onwards, it said.
The central bank is expected to make big rate cuts over the next year in spite of targeted consumer inflation in double digits, way above a 3% to 6% band, amid signs that the economy is feeling the strain of the global downturn.
Official data last week showed economic growth at a decade low of 0,2% in the third quarter of 2008.
Naamsa said in sharp contrast to the depressed domestic market, exports of South African produced vehicles during November rose by 86,3% compared to expects during the same month last year.
But the economic slowdown in the United States, the European Union and Japan — all important markets for South African automotive exporters — was likely to impact on vehicle and component exports during 2009.
Naamsa said overall new vehicle exports during 2009 could register a decline of about 15% on the 2008 figure.
Challenging times
Jacques Brent, vice-president of sales and marketing at Ford, said 2008 had been an unprecedentedly challenging year, and the situation was unlikely to turn around in the short term.
”Not only are consumers turning off their new vehicle purchase decisions due to the credit crunch, they are now also being affected by the sentiment attached to major capital purchases.
”We are entering a depressed market where the empirical limitations of new vehicle ownership are now compounded by the emotional restrictions of sentiment as to what will happen next.”
”The financial markets are still under great pressure, but hopefully with the inflation rate turning and some relative stability in the exchange rate we could see some activity returning to the markets.
”The expected cut in the fuel price and possible interest rate cuts during December will hopefully give South Africans more positivity for the holiday season, and potentially more buying power in the new year.”
Malcolm Gauld, the vice-president of sales and marketing for General Motors, said the 31,4% decline in passenger sales was evidence of just how squeezed the average household was.
”Record consumer debt levels of 82% have forced consumers to reconsider new vehicle purchases as they struggle to service household debt. Commercial sales, too, dropped by 23,2% (light) and 24,1% (trucks), reflecting a slowdown in the SA economy.”
”Although the latest CPIX numbers show that inflation appears to have peaked and fuel prices are set to drop by record numbers, we do not anticipate these measures to stimulate new vehicle sales in the short term. Any relief from the easing in rates and reducing fuel prices will likely be used by consumers to pay off accumulated debt. We only expect the market to recover from early 2010.”
Mike Glendinning, sale and market director for Volkswagen, said the full impact of the global financial crises and steadily emerging, possibly deep, global economic recession, would present challenging tradinf conditions in the new passenger care market.
”With 2008 drawing to a close it is probable that the new car market will end up some 24% down on the market recorded last year, and the outlook going forward seems to suggest that the market in 2009 could decline by a further 10% to 15% before some consolidation and recovery possibly occurs in the latter half of the year.” – Reuters, I-Net Bridge