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Credit crunch – banks decline more finance applications for new vehicle purchases

Credit crunch – banks decline more finance applications for new vehicle purchases
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

A rundown of this week’s news in the automotive sector.

It’s not looking good for consumers as South Africa braces for yet another interest rate hike this month, a fuel price that has breached the R23/litre, a worsening cost-of-living crisis, and rolling blackouts that are destined to get worse — much worse – by the time winter kicks in. 

The motor industry is starting to feel the pinch as affordability is becoming an increasing problem. A clear sign of consumer stress is a decline in bank approvals for new vehicle purchases – due in part to the effect of numerous interest rate hikes in recent times on the cost of instalments. 

Naamsa stats  

The Automotive Business Council has released the new vehicle statistics for April, noting tightening economic conditions. With South Africa’s real GDP growth expected to grind to a virtual halt of 0.1% for 2023, the Reserve Bank’s Monetary Policy Committee likely to hike interest rates once again this month, and more expensive fuel, the National Association of Automobile Manufacturers of South Africa (Naamsa) says it expects the domestic vehicle market to remain reserved for the greater part of the year.

Total domestic new vehicle sales in April 2023 declined by 0.2% year on year from 37,195 to 37,107 vehicles. An estimated 33,492 units, or 90.3%, were dealer sales, 5.2% were sales to the vehicle rental industry, 2.8% to industry corporate fleets and 1.7% to the government.

On the segmentation side, the April 2023 new passenger car market was down by 6.1% – 24,174 compared to the 25,735 units sold in April 2022, a decline of 1,561 cars. Again, car dealers accounted for the largest segmentation pool of passenger cars at 21,528 units or 89.1%, with car rental, individual corporate fleets and government sales accounting for 6.2%, 3.1%, and 1.7%, respectively.

Commercial vehicle sales were a welcome positive sign. Light commercial vehicles, bakkies and minibuses gained 11% YoY, selling 10,611 units (up from 9,562); sales of medium commercial vehicles were up by 20.3% (563 units, an increase of 95 units); and heavy commercial vehicles sales increased by 23%, with a total of 1,759 units sold.

Year-to-date, domestic vehicle sales were up by 1.3% (at 175,678 units), and April’s sales were 26% higher than in March.

vehicle sales

Vehicle exports for the year to date stood at 115,567 units, a 0.1% increase, while month-on-month export sales were down by 7.18% for April 2023 at 30,756 units, compared with the 33,136 sold the previous month.

Late to the party

Demand for electric vehicles (EVs) is rising, but the industry is not producing enough: Naamsa said 232 fully electric, 25 plug-in hybrids and 1,408 traditional hybrids had been sold in SA this year.

These EV sales are minuscule compared to Europe, South Africa’s biggest market, where more than a million passenger EVs were registered in Q1 2023.

The continent is leading the way in the global transition towards EVs. Data from Finbold indicate that EV passenger car registration in Europe for Q1 hit 1,177,637 – most of it in the EU and the United Kingdom. Between January and March this year, there were 52.94% more EVs registered in the region.

The researchers noted: “The surge in Europe’s adoption of electric vehicles can be tied to a combination of factors, including a climate-conscious populace with high income levels, strong government support for EVs, and the development of an extensive public-private network for EV charging infrastructure.”

Although Europe’s electric car adoption is on the rise, there are still barriers to overcome toward widespread acceptance, with high costs ranking among the top concerns.

Take me to your dealer

Commenting on the latest Naamsa stats, Mark Dommisse, chairperson of the National Automobile Dealers’ Association (Nada) attributed the reduced domestic demand for vehicles in part to long weekends in April. 

“But it turned out better than anticipated, with the total of 37 107 units sold being only 0.2% or 88 units less than the figure for April 2022.” 

He said dealers had pushed sales in March, as it was the end of a quarter, and that most manufacturers and distributors or importers had increased prices from 1 April.

But while sales to date were 1.3% higher than a year ago, despite numerous headwinds, the decline in bank approvals during April was worrying. 

“Supply remains sporadic, but this is limited to certain segments only. There is also another significant increase in the price of petrol in May. With the possibility of a further interest rate hike announcement at the end of the month, we trust the proven track record of the motor industry will prevail and future sales may not be as badly affected as some people are forecasting.”

A reality check from the fuel price

On Wednesday, the Department of Mineral Resources and Energy published the official fuel price adjustments for the month, which include a 37c/litre increase in the petrol price and a diesel price decrease of between 48c and 74c/litre. This is a significant increase in the price of petrol, pushing it above R23/l  for the first time this year. Illuminating paraffin has come down by 33c/l.

A litre of 95 unleaded will now retail for R22.62 at the coast and R23.34 inland, where the price of 93 unleaded is R23.01.

The Automobile Association (AA) warned last week that the expected increases would add further pressure on consumers grappling with food inflation, which hit record highs in the first quarter of 2023.

“The decrease [in] diesel and paraffin prices is certainly good news, especially as the country enters colder months. But the increases to the petrol prices will add more strain to already stretched budgets, and consumers are advised to revise their budgets accordingly. 

“There is no doubt these are difficult times, and petrol price increases will come as bad news for many who will have to dig even deeper in their pockets to keep mobile,” the AA said in a press statement, adding that there is a silver lining: the diesel price reductions. 

“Diesel is a big input cost in major sectors such as agriculture, mining and manufacturing, and an increase here often contributes to increased prices of basic commodities. The current increase in the consumer price index to 7.1% in March and food inflation hitting a 14-year high of 14.4%, plus an increase in diesel prices would have resulted in very unfavourable conditions for consumers.”

Combined Motor Holdings  

It’s not all bad news for the motor industry: JSE-listed investment holding company Combined Motor Holdings has declared a 240c-per-share dividend for the financial year ended 28 February. The dividend will be paid to shareholders on 19 June. 

It has increased revenue for the financial year by 11.3% year-on-year to R12.4-billion and seen an increase of 27.6% in operating profit to R773-million.

Basic earnings a share were up by 18.3% to 592.8c a share, while headline earnings increased by 23.2% to 617.1c a share.

Established in 1976, CMH is engaged primarily in the distribution and franchising, motor retailers, car hire and financial and support services sectors in South Africa. DM/BM

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