The sharp fall in total vehicle sales in December was expected, Nedbank Group's economic unit said on Friday.

It was commenting on data released earlier by the National Association of Automobile Manufacturers (Naamsa), which showed that new vehicle sales during December 2009 stood at 30 478 vehicles, a decline of 2 347 vehicles or 7,2% when compared to the total new vehicle sales of 32 825 units in December 2008.

“This was mainly due to the usual seasonal factors, which aggravated already weak demand conditions further," Nedbank said.

"The last two months of any year tends to be slow for car retailers as most consumers postpone purchases until the new year to improve later resale values," Nedbank added.

More encouragingly, the commercial vehicle market fared slightly better in December, it said.

"Sales of light and medium commercial vehicles rose over the month, while sales of heavy commercial vehicles still declined but at a much more modest pace than has been the norm for much of 2009."

Nedbank added that attractive financing packages and discounted prices mainly on some fully-imported commercial vehicles had probably convinced buyers to return to the market.

However, 2009 overall was an exceptionally tough year for both vehicle manufacturers and retailers with aggregate sales declining by 138 157 units or 25,9% to 395 230 vehicles compared to the 533 387 units sold during 2008.

Looking ahead, Nedbank said new passenger vehicle sales should increase off a low base in 2010, but underlying demand conditions would remain relatively weak.

"Households will probably remain cautious as income remains under pressure, debt levels stay high and labour market conditions remain exceptionally tight."

A more noticeable improvement was likely towards the end of the second quarter as household finances slowly improved, interest rates remained relatively steady and confidence started to improve in the build-up to the FIFA World Cup, Nedbank said.

"New commercial vehicle sales should also improve slightly in 2010, but the recovery in this market is likely to be much slower as private sector fixed investment activity is expected to decline further while the public sector's infrastructure programme is forecast to lose some momentum as several big projects around the World Cup are completed."

Nedbank added that exports should also fare better in 2010 as the world recovery continued, but the benefits of stronger global demand were likely to be contained by the loss of competitiveness due to a stronger rand.

Turning to the data's implications, Nedbank said the vehicle market appeared to have turned the corner, but Friday's numbers suggested that the recovery would be slow and subdued as underlying demand conditions remained fragile and confidence was still lacking from most areas of the economy.

"Despite this, the focus of the Reserve Bank's Monetary Policy
Committee (MPC) is likely to shift increasingly away from the downside risks to growth and towards the upside risks to inflation.

"The MPC is therefore not expected to offer any further relief but rather to keep rates flat for much of 2010 before starting to tighten in 2011," Nedbank said.