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Increasing financial pressure to impact new-car sales – Absa

Wessel Steffens

Wessel Steffens

4th August 2015

  

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The outlook for the new-vehicle market has deteriorated, with new-vehicle sales declining by 2.5% for the first seven months of 2015, compared with same period last year, says Absa Vehicle and Asset Finance managing executive Wessel Steffens.

“Economic growth, inflation, interest rates, household and business financial conditions, and levels of confidence will remain key factors impacting vehicle sales in the rest of the year.”

A much more upbeat Absa in January expected new vehicle sales “to improve from the 2014 level of almost 645 000 units sold, with sales growth forecast to remain in single digits”.

Steffens says entry-level passenger cars, new model releases and manufacturer incentives will be the main contributors to new-vehicle sales volumes for the rest of the year.

He expects a further hike in interest rates of 25 basis points in November, as a result of inflationary pressures.

Rates are forecast to increase by a further cumulative 75 basis points in 2016.

The prime lending rate is forecast to reach 9.75% and 10.5% at the end of 2015 and 2016 respectively.

“The vehicle sector is an interest-rate sensitive sector, with further interest rate hikes to negatively affect the affordability of and demand for vehicle finance,” says Steffens.

Consumers are increasingly experiencing financial pressure on the back of rising inflation and interest rates, while remaining highly indebted, he adds. The percentage of credit-active consumers with impaired credit records remains on a gradually rising curve.

“Consumers are still finding it difficult to obtain credit for higher-priced vehicles.”

Domestic fuel prices will drop in early August as a result of the rand-dollar exchange rate and international oil price movements, but may rise further towards year-end, notes Steffens.

“Fuel efficiency is expected to remain a major focus of vehicle purchases.

“The oil price is forecast to average $61/bl in 2015, rising to an average of $68/bl in 2016, while the rand-dollar exchange rate is expected to average R12.30 and R13.21 in 2015 and 2016 respectively.”

This rand weakness means new-vehicle prices may remain under upward pressure.

 

Edited by Creamer Media Reporter

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