South Africa’s new vehicle market is making an encouraging recovery from the impact of Covid-19 but sales are only expected to get back to pre-Covid-19 levels by 2023, according to economists and analysts.
The rate of change in new vehicle sales is regarded by economists as a leading indicator of changes in economic activity.
Data released last week shows that sales of 227 440 vehicles in the first six months of this year are 40.1% higher than the 162 346 units sold in the corresponding period in 2020. However, sales in the first half of this year are still 11.7% lower than the 257 610 units sold in the same six-month period in 2019.
Mikel Mabasa, CEO of automotive business council Naamsa, said this highlighted that a full recovery will be protracted “until 2023”.
Azar Jammine, chief economist at Econometrix, said it is not surprising that new vehicle sales are still lower than in the corresponding period in 2019 despite the year-on-year recovery.
“The economy is still a lot weaker than it was prior to the onset of the Covid-19 pandemic and there is nothing to suggest why new vehicles should have performed better than other parts of the economy,” said Jammine.
“On the contrary, what we have seen is that the transport sectors of the economy have proportionately taken a bigger battering than other sectors.
“It’s may be not quite as much as restaurants and hospitality, but it has taken a battering because of the change in the behaviour of people both internally in terms of travelling less to and from work and meetings and secondly the dramatic reduction in international travel,” added Jammine.
Car rental companies
He pointed out that the shortfall in sales to car rental companies, for example, probably accounts for the major portion of the shortfall in the performance of the overall new vehicle market compared to 2019.
He said the Covid-19 impact on household finances is “a bit of a mixed bag”.
Jammine explained that people, particularly in the lower income segments, have taken a big financial knock and been the hardest hit by the Covid-19 pandemic.
But he stressed these sectors are not the traditional vehicle buyers apart from some entry level vehicle sales.
“To that extent, potential vehicle buyers have not been that badly affected. In fact, you have the peculiar situation where in some respects the lockdowns have been positive for consumer finances because they have imposed a discipline on spending that would otherwise have gone to waste on travelling to and from here, there and everywhere, and going to restaurants and holidays and that sort of thing,” said Jammine.
“People have been able to build up cash flow or save more money than would otherwise have been the case, especially in the case of companies.
“The savings rate in the first quarter jumped to 18% of GDP from 14%, which is a big jump,” added Jammine.
Figures ‘make sense’
Economist Mike Schüssler said the lower sales in the first half of this year compared to 2019 makes sense because of the decline in sales to the car rental industry, which is still under tremendous pressure.
Schussler attributed this largely to the lack of tourists to the country, which has meant the car rental companies are not buying as many vehicles for their fleets, causing a knock-on effect on new vehicle sales.
A Moneyweb analysis of Naamsa’s monthly statements on new vehicle sales indicates that sales to the car rental industry accounted for an estimated 8.87% of total sales in the first half of this year compared with 9.36% in 2019.
Schussler believes it will take a long time before the new vehicle market is back to pre-Covid-19 levels.
“South African consumers remain under stress although the low interest rates are helping people to repay their motor vehicles. Other than that, South Africans are poorer and people aren’t buying as much,” he said.
Schüssler said there has also been a change in the new vehicle sales mix, with the buy-down to smaller and cheaper models distorting year-on-year comparisons.
“The car industry is having to readjust and rethink what they present to South Africans. I don’t think we are going for the smallest cars but the small SUVs [sport utility vehicles] are becoming very popular because people can’t afford the more luxurious and bigger cars anymore,” he pointed out.
“A lot of data is saying the same thing,” said Schüssler.
“With cars it’s just more pronounced because it is a durable item and you can delay buying a motor vehicle for one, two or three years if you have to.”
Henry Botha, head of strategy for Absa vehicle and asset finance, said it is difficult to know how strong demand is in the consumer and business markets because of new vehicle supply issues caused by the disruption to microcomputer chips for vehicles.
He believes sales could have been higher without the disruption to new vehicle supplies.
Botha said Absa agrees with the view of many economists that it will take until 2023 for the new vehicle market to get back to pre-Covid-19 sales levels.
However, he pointed out the new vehicle market was disappointing in 2019, lower than in 2018 and still a long way off the industry record sales year.
South Africa’s motor industry sold a record 714 315 vehicles in 2006 and achieved its second highest sales of 649 217 units in 2013.
Botha believes the recovery in new vehicle sales evident in the first half of this year will continue, with sales in the second half better than the first quarter of 2021 but “pretty similar” to the second quarter.
“The lockdown that we are currently experiencing will have some impact but nothing near the impact the lockdown had on sales figures between April and May last year.
“So I think sales will continue to recover. A good sales year is around 600 000 unit sales but I think we will still be below 500 000 for this year,” he said.
‘Recovery’ isn’t ‘growth’
Schüssler said the new vehicle market has made “an amazing recovery” but stressed it is “just a recovery and not a growth phase”.
He believes the industry could get back to between 2% to 4% of sales levels in 2019 about a year after the tourism industry is operating normally again.
“It has been a very good bounce-back or recovery, but it’s still got a way to go,” he said.
Schüssler added the performance of the new vehicle market will not be as strong in the second half of this year as in the first half because of the latest lockdown restrictions.
“People will be a bit scared so I see recovery going on but at a slower pace.
“The [recovery in the] economy was looking very good and the Reserve Bank said we would reach 2019 levels in 2022 but I think even they [the Reserve Bank] will now push it back to 2023. Cars will do the same thing,” he said.
Jammine also believes there will be a gradual improvement in the new vehicle market in the next six months subject to the economy recovering from the Covid-19 third wave.
He said this gradual improvement will be in line with the improvement in global economic activity and commodities boom that is boosting the mining and allied industries.
However, Jammine doubts the industry will achieve year-on-year sales growth in excess of 15% to 20% for the 2021 calendar year despite the “tremendous drop in the middle of last year” caused by the hard lockdown.
“So I think the new vehicle market will still end up weaker in 2021 than in 2019 but not dramatically so,” he said.