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Record-breaking vehicle sales in December 2014

BREAKING RECORDS South African vehicle sales broke all records for the month of December in 2014, with 51 462 vehicles sold

Photo by Duane Daws

VEHICLE IMPORTS South Africa imported 74 out of 100 vehicles sold in the country, which was similar to the 2012 and 2013 figures

Photo by Bloomberg

20th February 2015

By: David Oliveira

Creamer Media Staff Writer

  

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South African vehicle sales broke all records for the month of December in 2014, with 51 462 vehicles sold. Previously, the highest sales record for the month of December was in 2006, when 49 283 vehicles were sold, says advisory firm KPMG industrial, automotive and construction market partner Gavin Maile, adding that 2006 was also the best year, in general, for vehicle sales in South Africa.

Despite the record-breaking figure, total automotive sales in 2014 remained similar to those in 2013 and Maile predicts that 2015 is likely to produce similar results, owing to low growth due to increased labour and electricity costs, unstable electricity supply, labour unrest and low levels of disposable income in South Africa.

“At KPMG, we hold that a minimum gross domestic product (GDP) growth rate of 4.5% is needed for real economic growth. However, analysts have predicted this year’s GDP growth rate will be as low as 1.5% and, with current inflation rates at about 5.5%, there is little prospect of real economic growth for South Africa,” states Maile.

He suggests that the supply shortage and increasing cost of electricity presents a significant challenge to the local automotive industry, especially as tariffs during periods of high demand could increase substantially. “If this happens, the base cost for automotive manufacturers will increase significantly.”

Maile further notes that, while South Africa’s automotive industry remains stable, production levels have not increased in the past four years – a worrying fact amid potentially increasing production costs.

“The automotive industry is a global one and the only reason South Africa manufactures cars is because it is a profitable business. However, if productivity remains the same and the base cost of manufacturing increases to such an extent that it is no longer a profitable business case, then automotive companies could potentially close their operations in South Africa in favour of cheaper manufacturing destinations, such as Thailand or Turkey. This will cause a substantial loss in capital investment and jobs,” he warns.

Meanwhile, Maile notes that the declining oil price could indirectly help promote vehicle sales in 2015, provided that the price does not increase in the next six months. “South African consumers are currently highly indebted and, while the petrol price is not directly related to vehicle sales, it does have an impact on inflation, which has been decreasing.

“The decreasing inflation rate has enabled the South African Reserve Bank to keep rates steady and might even provide it with the opportunity to lower rates further, providing consumers with more disposable income.”

Imports and Exports
Last year, South Africa imported 74 out of 100 vehicles sold in the country, which was similar to the 2012 and 2013 figures.

Maile predicts that imports are likely to remain in the mid-70% region for the foreseeable future.

However, he points out that the number of imported vehicles has increased dramatically, in line with South Africa’s decreasing customs duty taxation, which has remained flat at 25% since 2012.

Maile notes that, in 1995, customs duty taxation was 71% and decreased each year to the current 25%. In that same year, South Africa imported 22 000 vehicles, which accounted for 9% of vehicle sales. Last year, South Africa imported 330 000 vehicles and sold 110 000 locally manufactured cars, compared with 235 000 locally produced cars being sold in 1995.

In addition, South Africa exported 16 000 locally manufactured cars in 1995, while 277 000 vehicles were exported in 2014.

Economic Impact
While Maile asserts that vehicle exports are creating significantly more income for South Africa, he points out that the strength of the local vehicle export market largely depends on the economic health of Europe, which is the largest importer of locally manufactured vehicles, followed by Africa and the US.

Last month, the European Central Bank (ECB) announced that it would employ quantitative easing strategies to stimulate economic growth in Europe, which has been experiencing low GDP growth since the 2008 global economic downturn.

“Europe does not seem to be coming out of the recession and could potentially undergo deflationary conditions. The ECB has recognised this and is throwing money at the problem to improve liquidity, which is what the US did to come out of the recession of 2008. If the European economy stumbles, our export numbers will decline,” Maile warns.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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