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Nov 26, 2010

Car importers more bullish than 
local-brand dealers as rand strengthens

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Africa|Environment|Rental|Africa|Automotive
Africa|Environment|Rental|Africa|Automotive
africa-company|environment|rental|africa|automotive
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Results from the latest WesBank Vehicle sales Confidence Indicator (WVsCI) show that confidence levels among dealers trading in imported vehicles (six out of ten) are stronger than those of dealers selling locally made brands (5,6 out of ten).

Wesbank sales and marketing head Chris de Kock says that there has been strong growth in the sale of imported vehicles in recent months, as a result of the rand’s strength-ening against a basket of major currencies, and of the fact that local production lines experienced disruptions in the second half of the year owing to labour action in the automotive industry, which caused a delay in the delivery of these vehicles to customers and a degree of import replace-ment.

“Associated Motor Hold-ings, [importing Hyundai, Kia, Daihatsu, for example], are giving the local guys a good run for their money, mostly on the back of great product,” says De Kock.

The WVsCI shows that the overall confidence level among vehicle dealers remains stable, at 5,7 out of 10, down from the 5,9 recorded in July.

De Kock attributes the decline to the strike action in the motor industry, and the introduction of the new carbon tax in September.

Another of the most notice-able trends in the latest results is the significant increase in confidence and activity in the used-vehicle market.

According to the data, 61% of the dealers surveyed say that they will describe the used-vehicle market as more active than the new-vehicle market, compared with 45% in July.

Data from the WesBank book confirms this sentiment. Since July, WesBank’s used-to-new ratio has increased from 1,63, to 1,91 used cars financed for every new car financed.

According to De Kock, this is driven by stock shortages in the new-car market, as well as rental companies defleeting after the 2010 FIFA World Cup.

Another key finding is the surge in the percentage of dealers who cited affordability as the most common factor preventing them from con-verting leads to sales, jumping from 13,1% in July to 21,6% in October.

In contrast, those citing bank approvals as the main reason fell from 25,2% to 18,5%.

According to De Kock, there are a number of factors that point towards positive sales growth in the vehicle market – commercial vehicles included – in 2011.

These include lower debt servicing costs owing to the favourable interest rate environment, low expected new-vehicle price inflation, and an upward trend in business and consumer con-fidence.

“It has never been more affordable to buy a car,” says De Kock. 
“We have seen a noticeable increase in the demand for credit.”

However, he says there are still challenges that may hamper new-vehicle sales, such as a high household-debt-to-disposable-income ratio (at around 80%), an increasing number of consumers with impaired credit records, and a vehicle replacement cycle that gets longer.

This last factor is backed by data gleaned from WesBank’s own book, which shows that the average deal duration for new vehicles increased to 65 months in September.

“To put this into context, the average deal duration recorded in September 2006 was less than 30 months,” says De Kock.

He adds that, although Wesbank may be receiving a growing number of credit applications, “we have limited opportunities to convert these into business”.

De Kock also notes that there is a visible buy-down trend in the market, with the Wesbank book up 40% in terms of new business volume, but only 30% in value.

He says he does not expect South Africa’s new vehicle market to “show massive gains” in 2011.

Edited by: Martin Zhuwakinyu
Creamer Media Senior Deputy Editor
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