Interest rate hikes dampen consumer appetite for new cars, says Naamsa
Interest rate increases are starting to hurt the South African vehicle market. In its latest new vehicle sales report, Naamsa | The Automotive Business Council said that the SA Reserve Bank’s interest rate increase last week was already denting consumer spending.
On 30 March, the SA Reserve Bank (Sarb) raised the interest rate by 50 basis points, which took the repo rate to 7.75% and the prime lending rate for consumers to 11.25%. It was the Reserve Bank’s ninth consecutive rate rise, bringing the cumulative increase to 4.25% since late 2021.
The increase was already having an impact on consumers’ shrinking disposable income, said Naamsa CEO, Mikel Mabasa.
“For many South African households, buying a brand-new car is the second most important investment. The perceived continued increase in interest rates would likely have a negative impact on the already severely financially constrained consumers’ affordability to purchase vehicles and/or to service their car loan repayments.”
At the end of February, TransUnion cautioned that while the slowing economy might not have scared off appetites for new vehicles and financing last year, the first half of 2023 was likely to paint a rather different picture.
Its TransUnion’s Vehicle Pricing Index for Q4 2022 suggested that the appetite for new vehicles was still healthy, with a slowing demand for used vehicles.
This, the credit reporting agency said, showed that the industry was shrugging off ongoing vehicle price inflation, declining consumer credit health and “looming macro-economic storm clouds” to record an increase in vehicle sales in the fourth quarter of 2022 – although 2023 was panning out to be a tough year.
For the period under review, Naamsa’s aggregate domestic new vehicle sales – recorded at 50,157 units – reflected a decline of 308 units, or 0.6%, from the 50,465 new vehicles sold in March 2022.
Overall, out of the total reported industry sales of 50,157 vehicles, about 43,801 units, or 87.3%, were dealer sales – 6.1% were sold to the vehicle rental industry, 4.1% to the government and 2.5% to industry corporate fleets.
For vehicle segmentation, the March 2023 new passenger car market (at 31,631 units) had registered a decline of 2,157 cars, or 6.4%, compared with the 33,788 new passenger cars sold in March 2022.
Most new cars were sold by the car dealer industry, accounting for 85.9% of all sales. Domestic sales of new light commercial vehicles, bakkies and minibus taxis at 15,529 units during March 2023, had increased by 1,556 units, or 11.1%, from the 13,973 light commercial vehicles sold year-on-year.
A highlight was sales of medium and heavy truck segments, which recorded 870 units and 2,127 units, respectively – up by 80 units, or 10.1% for medium commercial vehicles, and 213 more buses and trucks sold YoY.
Export sales were also up by 1,026 units, or 3.1%, to 34,134 units YoY.
Naamsa said while vehicle production was ramping up and export sales had steadily increased, the continued monetary policy tightening, slowing economic growth – domestically and globally – as well as energy shortages would have a greater impact on the industry’s performance.
Commenting on the results, the National Automobile Dealers’ Association (Nada) said March was a month of uncertainty, especially around the planned “shutdown” on Human Rights Day.
But Gary McCraw, Nada’s national director, took an optimistic view, saying: “The fact that total sales exceeded the 50,000 unit barrier was a positive sign, showing that there is still ongoing, pent-up demand for new vehicles. It is interesting to note that the 50,000 mark has been surpassed only twice since October 2019 – now in March 2023 and in March 2022.”
However, McCraw acknowledged that the Sarb’s rates decision was a setback for the industry as a looming rise would have turned off potential buyers.
“The retail dealer network fared well in the circumstances, with many of them having closed over the Human Rights Day period,” added McGraw.
“In fact, the dealers’ share of the new vehicle market continues to hold up, with the March share of 87.3% being even better than the 83.6% share in February. On a year-to-date basis, the dealers have sold 2,230 more vehicles this year than in the same period in 2022 – 117,178 versus 114,948.”
Another positive sign was the 3.1% increase in the number of vehicle exports as more new models – especially the next-generation Ford Ranger – came on stream.
“Looking ahead, we believe that as many local companies have entered a new financial year, there may be a greater appetite for them to start buying again. Ongoing load shedding and changes in company policies are seeing many more people now returning to work in their offices instead of at home, which means they are driving daily, which could also be a spur for new car sales.” BM/DM